Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

DEATH OF A MEMBER

Mr. Speaker: I regret to have to inform the House of the death of the right hon. Brian Kevin O'Malley, Member for Rotherham, and I desire on behalf of the House to express our sense of the loss we have sustained and our sympathy with the relatives of the right hon. Member.

Oral Answers to Questions — DEFENCE

Expenditure

Mr. Peter Morrison: asked the Secretary of State for Defence what representations he has received from trade unions on his cuts in defence expenditure.

The Secretary of State for Defence (Mr. Roy Mason): I have received many letters from trade union representatives about defence cuts. Several delegations have also been seen by myself and other Ministers in my Department. The representations have been mainly concerned with employment prospects in the defence industries and the closure or relocation of defence establishments.

Mr. Morrison: Has the Secretary of State explained to the trade unions and members of the Tribune Group that cuts in defence expenditure mean the loss of thousands of jobs?

Mr. Mason: As a result of the defence review and discussions on the public expenditure survey, I think they realise that job prospects in 1978–79 will have been reduced directly by 60,000 in defence industries and indirectly by another 80,000.

Mr. Frank Allaun: Is it not a fact that the TUC has pressed year after year for drastic cuts in arms spending? Is it not also a fact that the three unions most closely involved—the AUEW, the TGWU and ASTMS—have also consistently urged this policy?

Mr. Mason: All three unions have been involved in making representations to me for defence work. A total of 73 hon. Members, including 58 from my own side, have also approached me for defence work.

Mr. Ian Gilmour: Does not the question of the hon. Member for Salford, East (Mr. Allaun) and his remarks about unions show that union leaderships do not represent their members?

Mr. Mason: It indicates that many trade unionists on the shop floor are not fully conversant with the resolutions passed by their national executive committees on defence policy until their jobs are at risk.

Armed Forces (Deployment)

Mr. Banks: asked the Secretary of State for Defence what uncommitted forces are available for unforeseen circumstances outside the NATO area.

Mr. Mason: The general purpose forces of all three Services are available for world-wide deployment if necessary.

Mr. Banks: Does not the Secretary of State have to agree that areas outside NATO in which we have important interests are vulnerable to Communist intrusion because of the paucity of forces at our disposal?

Mr. Mason: We are not suffering from a paucity of forces. If necessary, we could deploy most of our three Services world-wide. We retain that capability.

Mr. Cronin: Is it not the case that the mobility conferred by air, including helicopters on ships, is such that the need for specially committed forces outside NATO is much less now than previously?

Mr. Mason: We have cut back considerably on our international commitments and, in consequence, cut our transport force by about 50 per cent. If we had to deploy world-wide we could do so, but it would take longer and the routes might be more difficult. However,


as we have cut back on our international commitments I do not see us having to deploy world-wide as often as in the past.

Mr. Goodhew: What co-operation has the Secretary of State sought from other NATO Powers to help in the defence of British and NATO interests in Southern Africa?

Mr. Mason: It would be best to leave the nations of Southern Africa to determine their future without any outside interference, irrespective of what nations may be concerned.

Royal Naval Social Service

Mr. Conlan: asked the Secretary of State for Defence when he expects the new social service organisation in the Royal Navy to be fully functioning.

The Under-Secretary of State for Defence for the Royal Navy (Mr. Frank Judd): As the House knows, the intention is that the new service should eventually take over the various existing naval social and welfare organisations. To make the transitionary arrangements as effective as possible, this is being approached in several distinct stages. The head of the new service has already made her first set of policy recommendations and she is currently reviewing the rôle of the existing family welfare organisations and naval community services. The next priority is to appoint three regional directors and supporting staff who will be based at Portsmouth, Plymouth and Rosyth.

Mr. Conlan: I thank my hon. Friend for his reply. Does he appreciate that the decision will be widely welcomed within the Service? Will he say what steps are being taken to employ professional, specialised staff?

Mr. Judd: We are determined to make use of the well-proven existing staff. In addition, 12 new social work staff will be appointed by the end of the year, seven naval personnel are currently undergoing social work training, and more will be accepted for such training during the year. Three of these specialist students are expected to complete their training this summer.

Mr. Goodhart: Does the Minister recognise the social problem created by the operation of the latest Rent Act,

which gives naval personnel cause for concern about renting houses and being able to get them back when they return from being posted abroad?

Mr. Judd: I thank the hon. Gentleman for his concern. The problem is well recognised and we are taking every possible step, through Navy News and other media, to instruct and advise naval personnel how best to combat the problem.

Air Crew Officers (Pay)

Mr. David Mitchell: asked the Secretary of State for Defence what action he proposes to take in view of the fact that certain officers of specialist air crews promoted to squadron leader rank are currently being paid less after promotion than before.

The Under-Secretary of State for Defence for the Royal Air Force (Mr. Brynmor John): As I have explained in a letter to the hon. Member, no specialist aircrew officer promoted to squadron leader receives less pay over the rest of his career than he would receive if not promoted. Most will be better off and all can expect to get better pensions and terminal grants.

Mr. Mitchell: Does the Minister agree that extra responsibility on promotion deserves extra pay, and that it is unsatisfactory even in this egalitarian age for a man to have to wait for five years before he gets the extra pay?

Mr. John: The hon. Gentleman knows that this scheme for specialist aircrew was introduced to enable us to retain experienced pilots beyond their normal retirement date if they do not advance beyond the rank of flight lieutenant. We judge that whilst we must preserve squadron leaders from receiving less pay the problem is to retain specialist aircrew so that we may have the great advantage of their experience.

Jaguar/Harrier Replacements

Mr. Alan Lee Williams: asked the Secretary of State for Defence what is the timetable for a decision on a Jaguar/ Harrier replacement for the RAF.

Mr. John: RAF Harrier and Jaguar aircraft entered service comparatively recently and should not need to be replaced until the late 1980s. Studies of


the operational requirement to be met by any replacement aircraft are continuing, including the possibilities for collaboration but it will be some time before any final decision needs to be taken.

Mr. Williams: As the Warsaw Pact air forces are increasing both in range and capability, does my hon. Friend agree that it is important for the Atlantic Alliance to have quality aircraft?

Mr. John: Yes, I agree that quality is an extremely important factor. That is why we are undertaking a study of the possibility of collaboration in this project.

South Africa (Defence Minister)

Mr. Brotherton: asked the Secretary of State for Defence if he proposes to meet the South African Minister of Defence.

Mr. Mason: I have no plans to do so.

Mr. Brotherton: Will the Secretary of State reconsider that reply in view of the ever-increasing Russian naval activity in the Indian Ocean? Will he ask his right hon. Friend the Prime Minister for permission to start renegotiating the agreement and reopening Simonstown?

Mr. Mason: No, I shall not consider it afresh, and I do not think that it is necessary to remind my right hon. Friend about Simonstown. The agreement is at an end, and if we wish to use Simonstown in future we can do so on a customer basis, as do other navies.

Mr. Atkinson: Is my right hon. Friend aware that a firm called Martin Baker recently shipped to South Africa, via France, 250 rocket motors to be used as spares in Buccaneer aircraft? Is my right hon. Friend also aware that according to available information South Africa does not have sufficient Buccaneer aircraft to take those spare parts? Does not that constitute an infringement of the embargo arrangements?

Mr. Mason: I have seen Press reports, but I cannot comment on Press speculation. It appears from the reports that the spares were Martin Baker ejection seat rockets. We are obliged to provide spares where we have legally contracted to do so. I shall have to await details to prove whether there are more spares than are needed for the number of Buccaneer aircraft owned by South Africa.

Mr. Eldon Griffiths: Does the right hon. Gentleman agree that every independent nation in lawful relationship with the world community has a right of self-defence against external aggression? Will he review the embargo on British weapons that might go to the defence of South Africa against external attack?

Mr. Mason: No, Sir. The Question was whether I proposed to meet the South African Minister of Defence, and I would tell him that if I met him.

Mr. Russell Kerr: In view of the Minister's paucity of information, will he undertake to make an urgent investigation of the matter?

Mr. Mason: I suppose that my hon. Friend is talking about the Martin Baker ejection seat rockets. I shall look into the matter. If there were an infringement I should be in honour bound to tell the House, but I do not think that there has been.

Multi-Rôle Combat Aircraft

Mr. Andrew F. Bennett: asked the Secretary of State for Defence if in the light of his recent White Paper he will make a further statement on his decision to proceed with the production of 385 multi-rôle combat aircraft.

Mr. Arthur Latham: asked the Secretary of State for Defence if, in the light of his recent White Paper, he will make a further statement on his decision to proceed with the production of the 385 multi-role combat aircraft.

Mr. Ted Fletcher: asked the Secretary of State for Defence if, in the light of his recent White Paper, he will make a further statement on his decision to proceed with the production of 385 multi-rôle combat aircraft.

The Minister of State for Defence (Mr. William Rodgers): I have nothing to add to what was said by Ministers in the Defence debate last week except to say that a seventh MRCA prototype has now flown.

Mr. Bennett: In view of the Select Committee's grave doubts and the Defence Department's review, which cast doubts, does the Minister agree that it is clear that the MRCA and its defence


variant is a waste of public money, in terms of both military objectives and public expenditure?

Mr. Rodgers: No, I do not agree with my hon. Friend. We discussed the matter fully last week in the defence debate, when Ministers were enabled to put certain facts before the House which I hope persuaded hon. Members that the MRCA is the best available buy.

Mr. Latham: Does my right hon. Friend recall that in that debate the Chairman of the Select Committee that has been studying the matter claimed that it was established as a result of evidence from officials of the Department that there are American and even some Warsaw Pact aircraft to which the MRCA is inferior? In view of that, and as no Goverment Front Bench spokesman answered that claim in the defence debate, would my right hon. Friend like to comment on that statement?

Mr. Rodgers: I am afraid that my hon. Friend has it wrong. I well remember the remarks made by the hon. and gallant Chairman of the Sub-Committee. I read his report, amongst others, but his proper comments were fully answered by my hon. Friend the Under-Secretary of State for Defence for the Royal Air Force on the following day. My hon. Friend pointed out that we had examined all the alternatives in great depth and had conducted a review between the time when the Expenditure Committee first took evidence and its Report earlier this year.

Mr. Goodhew: Is the Minister aware that there are Opposition Members who appreciate his support for the project?

Mr. Rodgers: There are hon. Members on both sides of the House who know how important the project is.

Mr. Robin F. Cook: Will my right hon. Friend give an assurance that the IDS version of the MRCA is not intended to have a long-range nuclear strike mission?

Mr. Rodgers: My hon. Friend asked that question a fortnight ago. The answer I gave him then—which I stick to—was "No".

Mr. Tebbit: Will the Minister say whether the ADV version of the MRCA is capable of intercepting and destroying Foxbat Soviet aircraft?

Mr. Rodgers: Yes, we believe that to be the case.

Amphibious Forces

Mr. Wall: asked the Secretary of State for Defence if he will make a statement on the future of British amphibious forces in the light of the Government's White Paper on Defence Estimates.

Mr. Trotter: asked the Secretary of State for Defence whether it is intended that the Royal Marine Commandos shall continue to be used in their traditional amphibious rôle; and, if so, how this can be done speedily and efficiently following the laying up or transfer to other rôles of all the Royal Navy's amphibious ships.

Mr. Judd: The amphibious forces will consist of the Royal Marines brigade headquarters, three commando groups together with their associated Wessex helicopters and Army support, and two assault ships, one of which will be kept at immediate operational readiness. HMS "Hermes" will also retain a secondary rôle as a commando ship. One commando group has for a number of years been equipped and trained to be available for all-year service in Arctic Norway; now, in addition, we have offered to assign the other two commandos for specific NATO priorities. One of these two commandos, together with a small tactical brigade headquarters, will also be trained and equipped for service in Arctic conditions. Sufficient shipping will be available for the deployment of the Royal Marines.

Mr. Wall: Will the Minister explain how commandos can operate without immediately available specialist shipping and heavy lift aircraft, which have been removed under defence cuts? Is HMS "Bulwark" to be laid up or scrapped?

Mr. Judd: I am sure the hon. Gentleman will recognise that while it is true that we have reduced the number of amphibious ships in service, those still available, together with HMS "Hermes"—which is in a secondary rôle as a commando carrier—and other specialised


support ships will be sufficient for many years to come, together with commercial shipping to be brought in if necessary, to transport commandos.

Mr. Trotter: Perhaps the hon. Gentleman will cast his mind back to the situation that obtained in the North of Norway in the last war when our soldiers were put ashore without adequate shipping.

Mr. Russell Kerr: Under a Conservative Prime Minister.

Mr. Trotter: Does the hon. Gentleman agree that it would be unfair to Service men and the nation to repeat such a situation? Is it not ridiculous to lay up three-quarters of the amphibious ships, thereby reducing the effectiveness of the Marine Brigade?

Mr. Judd: The hon. Gentleman will be aware that the amphibious ships that are available are perfectly adequate for all foreseen tasks which may be allocated to Royal Marine commandos. It would help if we were able to have supplies and stocks locally situated and available for the commandos when they are deployed. That is something we are constantly considering with our allies.

Mr. Goodhew: Will the hon. Gentle-assure the House that he is not counting on the support of British Rail ferries when he wishes to move commandos about the world?

Mr. Judd: There are no plans for the use of British Rail ferries. I can assure the hon. Gentleman that we shall use whatever shipping is necessary when the time comes to deploy the commandos as effectively as possible.

Scottish Banknotes

Mr. MacCormick: asked the Secretary of State for Defence if he will ensure that cashiers overseas will accept Scottish banknotes.

The Under-Secretary of State for Defence for the Army (Mr. Robert C. Brown): I shall ensure that Scottish banknotes are accepted in appropriate circumstances.

Mr. MacCormick: I can do nothing but congratulate the Minister on his answer, and thank him very much.

Mr. David Steel: Will the Minister confirm that the Scottish pound note abroad is worth every much as little as the English pound note? Now that the variety of Scottish notes has been reduced to three, does he agree that there is really no excuse for not accepting them?

Mr. Brown: Scottish banknotes will be exchanged at the same rate as English banknotes.

Mr. Monro: Will the Minister ask the hon. Member for Argyll (Mr. MacCormick) to stop publicising Scottish pound notes? Is he aware that it is not infrequent in England to get change for a fiver when tendering a Scottish pound note?

Mr. Brown: I am grateful to the hon. Gentleman for that advice. I think that I might try to collect Scottish pound notes.

Submarine Detection

Mr. Small: asked the Secretary of State for Defence what steps are being taken to improve the detection from the air of submarines in view of the growth in numbers of such vessels.

Mr. John: The Nimrod long range maritime patrol aircraft is to be given a major refit involving a new surveillance radar, acoustic processor and sonobuoys. When this is complete, the modified Nimrod, to be known as the Mark 2, will have a greatly enhanced capability to detect, classify and attack submarines and a much improved surface surveillance capability, which will maintain its effectiveness against the most modern submarines well into the 1990s.

Mr. Small: I am grateful for my hon. Friend's answer. Are intelligence-gathering facilities equal to both Services? Secondly, will my hon. Friend guarantee that there will be no clandestine activities by either Service in the gathering of intelligence?

Mr. John: I can assure my hon. Friend that the Royal Navy and the Royal Air Force co-operate very closely in activities over the sea, and that the information is available to them.

Rear-Admiral Morgan-Giles: As the Minister has rightly realised, this is a subject of the utmost importance. Why does


he decline to deploy these aircraft in the Mediterranean, as he told me in the defence debate last week?

Mr. John: I think that the hon. and gallant Gentleman misrepresents the intervention in the Mediterranean. Nimrods will be available from Malta for some time, and there will always be the option for us to deploy them in the area as and when necessary.

Research and Development Establishments

Mr. Ford: asked the Secretary of State for Defence what are the consequences for civilian employment of the rationalisation of defence research and development establishments.

Mr. William Rodgers: Rationalisation decisions are expected to reduce civilian employment in the R and D establishments by about 900 posts by the early 1980s.

Mr. Ford: Is my right hon. Friend aware that the technological spin-off from defence research contracts is of considerable value? Will he seek to mitigate the closure of such establishments when placing contracts with private industry?

Mr. Rodgers: I agree with what my hon. Friend says about these establishments, which maintain a very high quality and a high degree of effectiveness. We hope that we shall be able to maintain a much larger part of what they now do while concentrating work in fewer establishments. The importance of R and D is well understood.

Mr. Onslow: How many civilians currently employed by his Department will be declared redundant when the process of rationalisation is finished?

Mr. Rodgers: The process of rationalisation, which was started by the hon. Gentleman's Government in 1971, is likely to involve the loss of about 900 posts, although perhaps 3,500 people in all may find themselves relocated as a result of the closing of some establishments.

Mr. Cryer: Does my right hon. Friend agree that we spend too much on military research and development? Do we not need to transfer some military research

and development to civilian purposes, so that we can keep up with our competitors abroad? For example, Japan spends virtually nothing on research and development, but she is obviously successful in industrial affairs.

Mr. Rodgers: I shall turn round my hon. Friend's question. I agree that we should be spending more on civilian R and D, but it is not as easy as my hon. Friend supposes to transform military establishments into civilian establishments, or to move those working in military establishments into civilian work without considerable redundancy and hardship.

Mr. Mates: Is the hon. Gentleman aware that some of us are as worried about the cuts in civilian staff as we were about the cuts in "teeth" arms last year? Will he now come clean and tell us why our defence forces have been cut in this way? What possible sense does it make to cut the "teeth", as he did last year, by destroying brigade headquarters and taking away half of the RAF transport fleet, and then, this year to start considering a rationalisation of civilian staffs?

Mr. Rodgers: The hon. Gentleman goes much wider than the Question. It refers to the rationalisation programme that started in 1971. When it started the principal object was not to make substantial money savings; it was to make the establishments more effective. The matter raised in the hon. Gentleman's wider question was debated fully last week, and I do not think there is anything I can add today.

Wellington Barracks

Mr. David Price: asked the Secretary of State for Defence what progress is being made with the rebuilding of Wellington Barracks; when he expects these barracks to be once again available to accommodate troops of the Guards Division; and if he will make a statement.

Mr. Robert C. Brown: In conjunction with the Department of the Environment, we are re-examining our plans for this rebuilding project in the light of the latest constraints on the defence budget. Until the re-examination is complete I am unable to make a statement.

Mr. Price: Is the hon. Gentleman aware that since Sir Basil Spence was commissioned to rebuild Queen Anne's Mansions in the manner in which he did, the case for preserving the facade of Wellington Barracks, for architectural reasons, is greatly diminished?

Mr. Brown: The hon. Gentleman may well have a point, but this is a matter that will be taken into consideration in the review and re-examination.

Mr. Lipton: Is my hon. Friend aware that sufficient accommodation for the Guards Division is available in London near Buckingham Place without having to worry too much about Wellington Barracks?

Mr. Brown: That is a matter of opinion. I am sure that my hon. Friend's opinion will be considered when we have the review.

Land (Nugent Report)

Mr. James Johnson: asked the Secretary of State for Defence what progress he has made in implementing the recommendations of the Nugent Committee on Defence Lands.

Mr. Robert C. Brown: Good progress has been made in carrying out the recommendations of the Nugent Committee, which were accepted by the Government in their White Paper of August 1974, Cmnd 5714. Over 12,000 acres of land at 75 different sites have been released by my Department for disposal, arrangements for access have been improved, notably at Lulworth, many conservation groups have been organised, and the liaison committee that Nugent recommended should be set up has in fact submitted its first report.

Mr. Johnson: I thank my hon. Friend for his answer. Does he agree that it indicates a general advance? Will he supply further details about the improvements, instead of giving merely a list of sites?

Mr. Rodgers: Work has been completed on eight of the 21 sites specifically recommended by the Nugent Committee for landscaping. Two sites have been handed over to the Property Services Agency for disposal and work on the others is in the planning stage. Clearance of some of the largest areas of eyesore

has been inhibited because of the country's financial problems since the issue of the White Paper. As the White Paper made clear, it has not been possible to make special additional funds available for this purpose, as the Nugent Committee had hoped. None the less, work has been completed at Fremington, Plymstock, Wenbury, Christchurch, Sennybridge, St. Davids and Templeton.

Shackleton Aircraft

Mr. Tebbit: asked the Secretary of State for Defence if he remains satisfied with progress towards the replacement of Shackleton aircraft in the airborne early warning rôle.

Mr. Hardy: asked the Secretary of State for Defence what progress has been made towards a replacement of the Shackleton in its AEW rôle, and if he will make a statement.

Mr. William Rodgers: A project definition study of the Nimrod AEW has been undertaken by Hawker Siddeley Aviation and Marconi-Elliott and its results will be assessed during the coming months. We are also participating with other NATO countries in a definition study of the Boeing E3A, a report on which will be submitted to the spring meeting of the NATO Defence Policy Committee. Important and complex issues are involved, and I am satisfied that consideration of the possible options is proceeding as rapidly as possible.

Mr. Tebbit: In view of the limited remaining life of the Shackleton aircraft in this rôle, is the Minister satisfied that he will obtain money soon enough to purchase any suitable replacement aircraft as the Shackleton finally is grounded?

Mr. Rodgers: Yes, I am confident that money will be available. We acknowledge the fact that it is an expensive project and that the Shackleton will have to be replaced in the 1980s. We attach a high priority to this matter.

Mr. Conlan: Is the Minister aware that it is preferable that any replacement of the Shackleton for this work should be provided by British industry rather than by purchases from the United States?

Mr. Rodgers: The advantages are finely balanced, and my hon. friend rightly draws attention to one of them. We are also committed to finding a NATO solution if we can, because standardisation enables us to save on our defence budget. These are some of the considerations that we have to weigh one against the other.

Mr. Ian Gilmour: Will the Minister confirm that his original answer means that no definite decision will be taken at the next NATO meeting?

Mr. Rodgers: I do not believe that any definite decision will be made until much later this year.

Royal Air Force (Capability)

Mr. Dan Jones: asked the Secretary of State for Defence what effect the recently announced reductions in defence expenditure in 1977 to 1980 will have on the front-line capability of the Royal Air Force.

Mr. Brynmor John: The only change affecting the RAF's front-line capability will be the withdrawal of the Belfast squadron. There will be no significant military penalty, since we shall be retaining increased numbers of VC10s and Hercules. The remaining economies are very largely confined to those areas of the support structure which are not directly and immediately in support of front line units.

Mr. Jones: I thank the Minister for that reply. Has he any misgivings of any character in relation to the significance of my Questions?

Mr. John: I thank my hon. Friend for that supplementary question—which I barely understand. I think the answer to it is "No, Sir".

Mr. Blaker: Now that the Royal Air Force has left Gan, what arrangements are being made as to the future of that base, and is it intended to deny its use to the Soviet Union? Is the Minister aware that although this question was asked during the defence debate, it was not answered by the Minister of State?

Mr. John: The hon. Gentleman knows that negotiations took place with the Government of the Maldives on the transfer of certain assets in Gan to promote

tourism in that country. The other part of the supplementary question is a matter for my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs—when such a gentleman exists.

Mr. James Johnson: Will the Minister tell the House whether a final decision has yet been made about orders for the Buccaneer, in view of the immense importance of that aircraft, particularly in view of unemployment among Hawker Siddeley workers?

Mr. John: I do not think that supplementary question arises out of the original Question, which deals with the front-line capability of the Royal Air Force. However, I must tell my hon. Friend that when these decisions are taken every consideration is given to industrial policy.

Mr. Nicholas Winterton: Will the Minister assure the House that this country has sufficient detection and surveillance aircraft to guarantee its security against the growing menace of Soviet submarines?

Mr. John: As I made clear in an earlier reply, the answer is "Yes".

North Atlantic Treaty Organisation

Mr. Michael Marshall: asked the Secretary of State for Defence whether he is satisfied with current arrangements for consultations with NATO officials.

Mr. Mason: Regular and wide-ranging contacts are maintained with NATO officials on all matters of common interest, and I am satisfied with these arrangements.

Mr. Marshall: Is the Secretary of State aware of the published views of a NATO general, who says he believes that Russian capability is now so strong that it could overrun Europe by conventional means alone? Does he not now accept the wise words of my right hon. Friend the Leader of the Opposition as timely and in stark contrast to his own complacency?

Mr. Mason: The answer to both parts of the supplementary question is "No, Sir". If the hon. Gentleman had attended the defence debate he would have heard that the Belgian officer concerned had based his information on material


that was at least six years out of date. It has no credence in NATO circles and has nothing to do with the NATO Defence Military Planning Council.

Mr. Trotter: Has discussion with NATO extended to consideration of the situation in the Indian Ocean, particularly concerning Gan, bearing in mind that the Russians and Cubans would be the ones who would take most advantage of any tourist facilities to be promoted in Gan in future? Is he further aware that the so-called Government of the Maldive Islands are hard to find and have the unusual habit of marooning their Prime Minister on a desert island?

Mr. Mason: I do not see that the subject of the Indian Ocean has anything to do with NATO, which is the Question that appears on the Order Paper. The balance of naval forces in the Indian Ocean takes into consideration the fact that British, French and United States forces are a match for the Soviet forces. Consequently, Diego Garcia has changed from a communication facility to a support facility.

Mr. Edwin Wainwright: Does my right hon Friend agree that one of the weaknesses in respect of arms on the NATO side is lack of standardisation? In any discussions with NATO officials on standardisation matters, will the Secretary of State ensure that some progress is made and that this country receives its share of whatever arms are produced?

Mr. Mason: Great progress is being made on standardisation within NATO. Apart from the activities of the European group of Defence Ministers, my hon. Friend will know that an independent group was recently established incorporating the French. We can now look to a wholly European procurement idea of what is required for NATO and therefore speed up the standardisation of NATO equipment.

Mr. Mates: The Secretary of State says that information on which the Belgian officer concerned acted was six years out of date. Will he say whether our strength relative to that of the Soviet bloc forces has grown greater or less in the ensuing six years?

Mr. Mason: In regard to NATO the hon. Gentleman must be aware that

because of the triad of forces in conventional, tactical and nuclear strategy, there will be a deterrent against present Warsaw Pact strengths. Secondly, in the past year the hon. Gentleman will know from the White Paper on Defence that there has been a shift in conventional strengths in favour of Warsaw Pact countries.

Mr. Hastings: asked the Secretary of State for Defence whether he is satisfied with the current strength and state of preparation of the NATO Alliance.

Mr. Mason: It would be dangerous ever to become complacent about the forces available to NATO, but I do, of course, have confidence in the triad of forces which support NATO's flexible response strategy. NATO countries, including the United Kingdom, are also alert to the need to maintain the quality and effectiveness of their forces and equipment to take account of the increasing military capability of the Warsaw Pact.

Mr. Hastings: In view of what the Secretary of State said this afternoon in response to an earlier supplementary question, does he take so little account of the risk of the Alliance in Southern Africa, in terms of the loss of immense supplies of raw materials and of our trade routes? Will he think again about this matter and say whether he will persuade his colleagues in the Alliance to be more aware of the risks in the area?

Mr. Mason: The Question relates to the North Atlantic Treaty Organisation and not to developments beyond the Cape.

Mr. Stonehouse: Is it not part of the NATO decision to base the British Army in Germany? If so, why does not NATO, and Germany itself, accept a greater part of the cost, which is £700 million a year, £350 million of which is in foreign exchange?

Mr. Mason: The figures that my right hon. Friend quoted are not strictly correct but, as he realises, the offset agreement with the Germans expired last week and negotiations are already under way with them on a new agreement.

Mr. Adley: As the COCOM was was originally compiled to deal with a considered threat from NATO's enemies


and world events have moved on, particularly in South-East Asia, since then, will the Secretary of State consider a re-examination of COCOM to see that it is now made relevant solely to members of the Warsaw pact?

Mr. Mason: The COCOM agreement is constantly under review and is changed when necessary.

Mr. Molloy: Does not my right hon. Friend agree that the essential that NATO claims that it stands for would be enhanced not only in Africa but throughout the world if it made an open declaration of utter condemnation of the behaviour of some States in Southern Africa and issued a decree that it is absolutely opposed to any form of racial discrimination?

Mr. Mason: That is more a question for my right hon. Friend the present Prime Minister and former Foreign Secretary, but most of the members of the NATO Alliance have already condemned the practices to which my hon. Friend has referred.

Mr. Onslow: Returning to the offset agreements, is it not a fact that the German-American offset agreement expired last year and that no new agreement has yet been concluded? If that is so, how long does the Secretary of State expect the negotiations for a new agreement between ourselves and the Germans to take, and what interim arrangements is he trying to make?

Mr. Mason: The hon. Gentleman is wrong. It did not expire last year. It expired last week. Concerning the American agreement, they have made progress with the Germans. Our agreement expired last week, and the first consultations on a new agreement took place between my right hon. Friend the former Prime Minister and Helmut Schmidt at Chequers quite recently. I think that it will take some time before we can conclude a fresh agreement.

Army Reservists (Military Exercises)

Mr. David Steel: asked the Secretary of State for Defence if he will set up a compulsory insurance scheme for part-time soldiers on military exercises.

Mr. Robert C. Brown: No, Sir. When a reservist's death or injury is attributable to service, and arises in the course of peace-time exercises or training, benefits are already payable under the Department of Health and Social Security's war pensions scheme. In addition, the widow or, in the event of injury resulting in his discharge, the reservist himself receives further benefits from the Ministry of Defence.

Mr. Steel: Is the Under-Secretary satisfied that these provisions are adequate? Is he aware that this Question was tabled in the wake of the unfortunate accident on the River Trent, when a number of Scottish reservists met their deaths? Is he aware of the public concern about the inadequacy of the arrangements that he has just outlined?

Mr. Brown: I am aware of the fact that this question first raised its head publicly at the time of the Kiel Canal disaster, when several reservists lost their lives, and that it was raised further with the tragedy on the River Trent last year. However, I am well satisfied that the provisions that we have made are adequate to meet the purpose.

Dr. Glyn: Is the Minister aware that there should be no discrimination between soldiers in the Regular Army and reservists in terms of accidents that occur when they are on duty? There seems to be no justification for this discrimination.

Mr. Brown: The fact is that there is no discrimination. I am sorry that the hon. Member has suggested that there is. Following the disaster at Kiel, the scheme that we introduced covered reservists as well as Regulars.

Vosper Thornycroft (Contracts)

Mr. Stephen Ross: asked the Secretary of State for Defence what contracts have been awarded in the past 12 months by his Department to Vosper Thornycroft; and what assurances he can give as to the future employment of this company on Royal Naval and ancillary work.

Mr. William Rodgers: In the last year Vosper Thornycroft has been awarded contracts for the construction of the first of the new mine counter measures vessels


and a Type 42 destroyer. It has also received contracts for civil engineering works associated with the MCMV programme. We expect the firm to continue to play a vital part in the Royal Navy's construction programme as one of the specialist warship-builders.

Mr. Ross: I welcome that news. Will the Minister reconfirm that it is the Government's intention to maintain a warship-building concern on the South Coast? There is great worry among workers at Vosper Thornycroft that there may not be enough business for them in the foreseeable future.

Mr. Rodgers: There is no intention of changing the Government's present policy on warship-building.

Oral Answers to Questions — NATIONAL ECONOMIC DEVELOPMENT COUNCIL

Mr. Stott: asked the Prime Minister when he next plans to attend a meeting of NEDO.

Mr. Norman Lamont: asked the Prime Minister when he next intends to take the Chair at NEDC.

The Prime Minister (Mr. James Callaghan): I would expect to take the chair at meetings of the National Economic Development Council from time to time, but I have no immediate plans to do so, Sir.

Mr. Stott: Is my right hon. Friend aware that it is a unique privilege to have been rather fortuitously selected to ask the new Prime Minister the first Question? May I offer my right hon. Friend my sincere congratulations and wish him well in his future endeavours? Is he further aware that if he transmits to the NEDO the policies that he enunciated on television last night, not only are they likely to meet with success but they would contrast markedly with the woeful lack of policies and the lamentable failure of the Conservative Party?

The Prime Minister: I am much obliged to my hon. Friend for what he had to say. No one is in any doubt about the difficult times that this country faces, but if we tackle them with determination, energy and optimism, I am certain

that this country can come through—and that will demand from everyone an effort that is greater, perhaps, than that which we have made so far.

Mrs. Thatcher: Is the Prime Minister aware that whether or not he attends the next meeting of the NEDO, my right hon. and hon. Friends and I would like to offer him our very warm congratulations on becoming Prime Minister and our personal good wishes? We should be very grateful if he would also convey our good wishes to his family, who will take a special pleasure and pride in his achievement. I know that we shall have our political differences from time to time, but I hope that we shall always be able to debate them in a courteous and generous spirit.

The Prime Minister: The right hon. Lady disarms me, and that is a very dangerous thing to do. Speaking personally, I am looking forward to a honeymoon of about 10 days at the most, and then I rather fancy that there will be the well-known cries of "Bring back Harold" from the Opposition Benches.

Mr. Thorpe: May I, too, congratulate the right hon. Gentleman on both his election and his appointment, and assure him that if he sticks to the objectives that he indicated last night on television, he will be entitled to support going beyond his own party, or sometimes instead of his own party? Will he, at least in the flush of victory—being a magnanimous man—have some sympathy for the friend of the whole of this House—the Secretary of State for Employment, the right hon. Member for Ebbw Vale (Mr. Foot) who was denied the use of the clear, decisive, well understood first-past-the-post system which we all favour—at least, with the exception of the Liberal Party—and which the Government particularly favour, and who would otherwise have been in Downing Street 10 days ago?
Finally, may I ask the right hon. Gentleman a question that is relevant to this Question? Does he agree that if the NEDO and the NEDC were able to get agreement on an economic policy which could stretch beyond the confines of one Parliament and one party, it would do more for investment and stability than any other single factor?

The Prime Minister: I am very grateful for support from wherever it comes, but I intend to rely upon the support of my own party in this House. As long as I command that support, I shall be ready to do what is necessary in the national interest.
As regards the position of my right hon. Friend the Member for Ebbw Vale (Mr. Foot), he is so thoroughly objective in these matters that no matter what the personal consequences may be, he still sees all the advantages of the first-past-the-post procedure, and so I do not think that the right hon. Gentleman will be able to claim him as an ally on this matter.
I have not had the privilege of attending the meetings of NEDO and NEDC for about eight years, but when I did, I remember the considerable degree of objectivity in the undertakings that they gave. I would certainly hope that we could have—and the Government already have—a long-term economic policy which, if it can be stretched beyond the realms of this Parliament, however long this Parliament may continue—and it may well have a very long life before it—will be of benefit to the country if the policies can be carried on with general agreement.

Mr. Atkinson: During the honeymoon period to which my right hon. Friend referred will he give some thought to the statement which he made yesterday indicating his desire to meet the trade union leaders as soon as possible? Will he now give some indication about the policy he will pursue? Does he intend to meet the trade union leaders, negotiate an agreement with them and then come back to the House, putting that agreement before the House in the form of a policy? Or does he intend to reverse that procedure, getting agreement within the House of Commons and establishing a policy, and then trying to put it to the trade union leaders? Which way round does he intend to proceed?

The Prime Minister: It would be proper, I think, to proceed in the way that we have done so far, namely, that my right hon. Friends the Secretary of State for Employment and Chancellor of the Exchequer would engage the trade unions in discussions on all matters that are appropriate, that they would

act under the general guidance of the Cabinet as a whole and would secure the support of the parliamentary party. So far, that system seems to have worked very well.

Mr. Molyneaux: May I offer the Prime Minister the congratulations of the United Ulster Unionist Party? May I also express the hope that since the present campaign against the people of Northern Ireland and of the United Kingdom generally began while he was Home Secretary, so it may be brought to an end under his premiership?

The Prime Minister: I am grateful to the hon. Member, whose friendship I think I may say I have enjoyed for many years and whose services to the people of Northern Ireland I know. I can only echo that if this task is within the capacity of anyone to solve, it will certainly have my unswerving attention, because the people of Ireland have suffered too much for too long, in the interests of their cause, and this matter could be settled if men of good will—and there are some in all parties in the House, as well as in Northern Ireland—were allowed to get control of events and if the extremists were to realise that they cannot win what they are attempting by the methods they are employing.

Mr. Donald Stewart: May I convey to the right hon. Gentleman the good wishes of my hon. Friends and myself in his task? Since we cannot extend the honeymoon to 10 days, will he bear in mind, when Cabinet-making, that his Secretary of State for Scotland does not regard unemployment in Scotland as being disastrous at present? What does the right hon. Gentleman intend to do about that?

The Prime Minister: I shall keep everybody's name in mind in the process of Cabinet-making, but as long as the SNP stands for separation and not devolution I am afraid that I cannot consider members of that party for any of these posts. As for the serious question about unemployment, I regret that in Scotland there was a slight upward movement last month, contrary to the general trend, which appeared, admittedly on a short-term basis, to be downward. I trust that what the Government are doing in their economic policies will reverse any upward


trend. This is a problem that must be tackled.

Mr. Speaker: We now go back to ordinary Questions. Mr. Hannam.

Oral Answers to Questions — SECRETARY OF STATE FOR ENERGY (SPEECH)

Mr. Hannam: asked the Prime Minister if the public statement on economic policy and other matters, made in London on 17th March by the Secretary of State for Energy, represents the policy of Her Majesty's Government.

Mr. Tebbit: asked the Prime Minister if the public statement on proposed future Government policy made by the Secretary of State for Energy at a Press conference on 17th March represents Government policy.

The Prime Minister: The public statement made by my right hon. Friend makes it clear that he was giving his reasons for accepting nomination for the leadership of the Labour Party.

Mr. Hannam: As well as our congratulations, will the Prime Minister accept our sympathy on inheriting a shattering legacy of industrial decline? In drawing up his Cabinet, will he recognise the fearful damage being caused to international confidence by such proposals as import controls and further State intervention? Will he resist these proposals and govern now for the nation and not for the party?

The Prime Minister: I am grateful to the hon. Gentleman for his opening comment. As for industrial decline in this country, the hon. Gentleman is partly right, provided that he does not make too much of a party point of it. He knows, as I do, that this industrial decline has been going on for 30 years, or perhaps much longer, and it is therefore a matter that needs to be reversed immediately if the country is once again to enjoy rising standards. I think that the Government's policies—especially in regard to such instruments as the National Enterprise Board—if they are properly used and are not destroyed in party ideology, can do a great deal, especially if coupled with the restoration of confidence, to

ensure that the industrial decline is reversed. We must pay attention to this task.
The Government's policy on import controls is quite clear. It has not changed from what it has been so far. A country that lives by its exports—which must earn its living by them—must consider seriously before it introduces import controls. On the other hand, looking at this in a practical way, for industries that would otherwise be viable but are being destroyed in the short term, it is proper and right to save employment so that they may live to thrive again.

Mr. Mike Thomas: There are more than two sides to the argument on economic policy. In the formation of that policy and the running of companies it is about time that the consumer voice and the voice of the general public interest were given a far larger say. To that end, will my right hon. Friend see that the National Consumer Council is given a formal place in NEDC rather than its informal attendance, at present?

The Prime Minister: I am obliged for that suggestion. It is one that has escaped my attention during the last two years, but I undertake to have it looked into and to communicate with my hon. Friend.

Mr. Tebbit: Will the right hon. Gentleman now return to the Question on the Order Paper? Does he agree that it can be answered only by "Yes" or "No"? Does he agree that the answer is "No", and that he has in the Cabinet still, as far as we know, a member of his team who disagrees basically with every item of Government policy, and said so in the speech to which this Question refers?

The Prime Minister: I have studied what my right hon. Friend said, which is headed "Statement announcing candidature". Having read it, if there had not been a better candidate in the field, I might even have voted for him.

Mr. Heffer: Is my right hon. Friend aware that many of us who read that statement felt that it was an excellent one? On the question of import controls, does my right hon. Friend not agree that the points made by the TUC in its economic review bear looking at very


carefully? The TUC is asking for import controls, and therefore, on the basis of the discussions which my right hon. Friend will enter into with the TUC, will he take another look at the matter, because this is one of the ways—as has been established by the Cambridge school of economists—actually to deal with our problems?

The Prime Minister: I would not be greatly persuaded by the Cambridge school of economists. I am not sure that my right hon. Friend would be, either. As for the TUC, that is a more serious matter, because it lives in the everyday world.
I take very seriously the fact that the trade union movement certainly feels that in a number of areas import controls would be valuable. We must examine this from the foundation, because it is important that we carry the trade unions with us in seeing where the true interests of the workers and (hose they represent lie. If their true interests lie in not having import controls, I know that the TUC would accept that, but I think it is our job to examine the facts and then to persuade them, and I shall certainly do that.

Mr. Rathbone: May I personally add my own congratulations to my constituent on his appointment as Prime Minister, and ask him whether he realises how widely the commitment to freedom which was expressed on television last night has been appreciated by many of his fellow constituents and by others throughout the country? May I further express the hope that this will guide him in his deliberations with whomever at whatever time?

The Prime Minister: I am much obliged to the hon. Gentleman. I think it is true that freedom is an extremely important issue—specially as one goes round the world and sees it being eroded in many places. Our own people—the people we represent—have had their freedoms enlarged in many ways in recent years. I can speak personally about that. In such matters as education there has been a genuine enlargement of freedom. Let no one forget that. I think there must be general consent throughout the House that, whatever view we take, the strongest society we can form is based on individual freedom and personal

responsibility. If those two go together, no dictatorship in the world can overthrow them.

Mr. Whitehead: As Question No. Q3 cannot now be reached, will my right hon. Friend accept that we all know that any acknowledgment he makes today will not measure up to the unique one he made yesterday, and that he sets out now on his task as Prime Minister with the good wishes of the 316 minority groups in the Parliamentary Labour Party?
Concerning my right hon. Friend's speech on television, will he reiterate in the House now that the predominant theme of this Administration will be a commitment to social reform and equality, which are sadly lacking in this country?

The Prime Minister: The previous Administration under my right hon. Friend, from 1964 onwards, did a very great deal in these fields, and it will certainly be my task to try to carry on where my right hon. Friend left off.

Mr. Marten: On a point of order, Mr. Speaker.

Mr. Speaker: Order. Would the hon. Gentleman prefer to ask the supplementary question?

Mr. Marten: Yes, Mr. Speaker. The supplementary question is really related to Question No. Q3, which, as I see—

Mr. Speaker: Order. The hon. Gentleman had better make his point of order quickly.

Mr. Marten: It is exactly the same point. The point really was to be about answering Question No. Q10, because at the end of Questions yesterday I raised with you, Mr. Speaker the question why we did not have an oral statement about the most important summit meeting that took place last week. I have since made my own inquiries—as I am sure you have, Mr. Speaker—and I find that there was a statement in a Written Answer. I raise the question because I think it is wrong that this should be a precedent. I hope that the Prime Minister—whom I congratulate on taking up his post—will expose himself at the Dispatch Box to questioning on the summit meeting.

The Prime Minister: Further to the point of order. I agree with the hon. Gentleman that in general it would be


better to give an oral statement after a European Council meeting, and I undertake to do so.

BILL PRESENTED

ELECTRICITY (FINANCIAL PROVISIONS) (SCOTLAND)

Mr. Secretary Ross, Supported by Mr. Bruce Millan and Mr. Robert Sheldon presented a Bill to increase the statutory limits on the amounts outstanding in respect of borrowings by the Scottish Electricity Boards, and to make provision for compensating the North of Scotland Hydro-Electric Board for deficits incurred or to be incurred by that Board in supplying electricity to the British Aluminium Company Limited for the operation of that Company's aluminium reduction plant at Invergordon: and the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 111.]

STATUTORY INSTRUMENTS &c

Mr. Speaker: In order to save the time of the House, unless there is objection I propose to put the Question on the two motions relating to Statutory Instruments together.

Ordered,

That the Brucellosis Compensation (Scotland) Amendment Order 1976 (S.I., 1976, No. 258), be referred to a Standing Committee on Statutory Instruments, &c.

That the Brucellosis (England and Wales) Compensation (Amendment) Order 1976 (S.I., 1976, No. 257) be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Edward Short.]

WAYS AND MEANS

BUDGET STATEMENT

Mr. Deputy Speaker (Mr. Oscar Murton): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor's speech, as in past years, copies of the Budget Resolutions will not be handed around in the Chamber but will be available to hon. Members in the Vote Office.

INTRODUCTION

3.36 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey): The Budget I am presenting today is likely to prove the most crucial of the present Parliament. On the one hand, it must ensure that we consolidate and extend the gains we have made in the past year. On the other hand, it must prescribe the course for the fastest possible return of Britain to full employment and external balance during what is now universally recognised to be a period of world recovery. This is above all a Budget about jobs and about inflation, which is the main threat to jobs in Britain today.
I deal first with the short-term problems against the economic background of the past twelve months.

ECONOMIC REVIEW

The World Economy

When I presented my last Budget, the world economy was in the trough of the deepest recession since the war. In the first half of last year the gross national product of the eight largest OECD countries outside the United Kingdom fell by 5 per cent. at an annual rate, and world trade fell by even more—around 14 per cent. at an annual rate. Unemployment in the industrial countries was rising to levels unknown since the War. At the same time, most countries' rates of inflation remained well into double figures.

I then predicted that a recovery in the world economy would be under way by about the turn of the year. In fact, the turning point came sooner. The United States economy recovered strongly in the third quarter. In the fourth quarter most


of the main European economies, especially Germany, began to pick up. It is too early to be sure, but the rise in GNP in the industrialised countries in the second half of last year probably came close to reversing the fall in the first half.

Similarly with world trade: the rise in import volumes in the fourth quarter of last year probably came close to offsetting the falls seen at the beginning of the year.

Although this recovery in world output and trade must owe a lot to a turn-round in stockbuilding, we expect it to be sustained through the coming year. Private fixed investment may remain generally rather weak for the time being. But private consumption, in particular—I am talking of the world as a whole—is likely to rise quite strongly, as the rate of inflation moderates and the full effects of last year's tax cuts and credit relaxations are felt. In addition, stock-building should continue to contribute to world recovery this year, and public spending will continue to be boosted by the accelerated programmes of public works announced in many countries last year.

The domestic economy: output and employment

In the United Kingdom we have inevitably shared in the world recession. The main fall in activity came between the third quarters of 1974 and 1975, when our gross domestic product fell about 4½ per cent. This was an exceptional fall by our own past standards, though not by comparison with recent experience in some other industrial countries like Germany and the United States. The fall in our activity was due mostly to a fall in exports and an exceptionally large rundown of stocks, and since both have a high manufacturing content, manufacturing production fell even more sharply than GDP—by 9 per cent. over the same period. Personal consumption fell a good deal less.

This deep recession inevitably led to a big increase in unemployment, which reached 1·2 million—on a seasonally adjusted basis—at the beginning of this year. This level disturbing though it is, was no worse than what many other industrial countries experienced and a good deal less than in the United States.

Moreover, the development areas have suffered comparatively less than in previous recessions: the gap between the United Kingdom average and unemployment rates in Scotland, Northern Ireland and Northern England has been reduced.

The tide has now turned and output in the United Kingdom is rising. But the extent of the recovery so far is uncertain. The increase in gross domestic product between the third and fourth quarters of last year was probably about 1 per cent. though the expenditure figures suggest a rather faster rate of expansion. Exports of goods and services rose by 5 per cent. in volume between these two quarters, there was a moderate rise in personal consumption and the fall of stocks was much reduced.

A moderate rate of recovery probably continued into the first quarter of this year. Industry is now rebuilding its stocks. Survey information suggests that exports are on a strong upward trend and business confidence is improving steadily. Up to the fourth quarter of last year manufacturing investment was falling, but this is to be expected at the present stage of the cycle and surveys of investment intentions suggest an upturn in investment later this year.

The outlook for unemployment now seems distinctly brighter. Recent monthly figures have shown an impressive change from increases averaging over 40,000 a month—seasonally adjusted—throughout the latter half of last year to a rise of 22,000 in February and a fall of 6,000 in March.

But, encouraging though this is, we cannot be at all certain whether they signal a definite turn-round or not. In the past there has often been a long time lag before a recovery in output has led to a firm downward trend in unemployment. Some of the improvement in the unemployment figures must be due to the special measures I announced in September, December and February, although it is not possible to identify their specific effects. If we judge solely by the movement of GDP in the last few months, it may still be too soon to expect the trend in unemployment to be reversed. But some of the indicators suggest that a rapid improvement may already be under way. I would mention in particular the steady


increase in the number of notified vacancies over the last three months, as well as the large increase in our imports of industrial materials. So nevertheless we would be wise to wait some months longer before reaching a firm conclusion on the basic trend.

The balance of payments and external financing

I turn now to the balance of payments. I predicted a year ago that the current account would improve by at least £1 billion between 1974 and 1975. In the event, it improved by nearly £2 billion, from a deficit of £3,650 million in 1974 to one of £1,700 million last year.

This improvement was due partly to a favourable change in import volumes relative to export volumes and partly to an improvement in the terms of trade. Import volumes fell by 7 per cent. as a result of the domestic recession and heavy de-stocking. Export volumes also fell, but by less. United Kingdom exporters increased their share of world trade in manufactures in the first half of the year but may have lost some of this gain in the second half as world demand recovered. The terms of trade moved in our favour by 12 per cent. between the second quarter of 1974 and the third quarter of 1975, since when they changed little until the recent depreciation of sterling. There has been little change in the balance of invisible transactions.

Relative to GDP, the improvement in the balance of payments is even more striking. In 1974 the current account deficit was over 5 per cent. of GDP. In 1975 it fell to a little under 2 per cent. I believe that we will be able to hold on to this improvement in 1976, despite the upswing in home demand.

Foreign currency borrowing helped substantially to finance the current account deficit in 1975, and borrowing by public sector bodies under the Exchange Cover Scheme has already made an important contribution this year. Moreover, apart from the special oil facility, our credit lines in the IMF remain wholly undrawn, and the amounts potentially available have indeed been temporarily increased by 45 per cent. to the equivalent of just over SDR 4 billion—£2·4 billion—under the agreement reached at Kingston, Jamaica, in January. We should thus have

no difficulty in meeting our external financing needs this year. But I must emphasise that this depends on our success in fighting inflation and in maintaining confidence in our determination to pay our way in the world.

The public sector borrowing requirement

The latest estimate of the PSBR as a whole is about £10¾ billion. Though this is more than the forecast I published a year ago, it is significantly below what many commentators were predicting.

Both revenue and expenditure were higher than expected. The net increase in the PSBR was partly due to the unexpected depth of the recession but mainly to an under-estimate of the effect of inflation on public expenditure.

Monetary developments

Despite the large borrowing requirement, the supply of money has been contained. Last year I said that it was essential that my strategy should not be undermined by a relation of our stance on monetary policy. In fact, the rate of growth of money supply on the broader definition was lower in 1975 than in 1974; M3 increased by 8 per cent. in 1975 compared with 13 per cent. in 1974. Monetary growth in both these years was far lower than the 28 per cent. increase under the previous Administration in 1973. I do not believe that anyone would now deny that my monetary policy has helped in the fight against inflation whereas my predecessor's made inflation much worse—and for a long period after he had left office.

More than half the public sector borrowing requirement in 1975 was financed by the sale of public sector debt outside the banking system, while demand for credit from the private sector remained slack. In keeping with my policy of concentrating credit on the essential needs of the economy, the qualitative guidance to the banks and finance houses was renewed in December. They were asked to ensure that any expansion of their business was directed to the needs of manufacturing industry for working capital, expansion of exports, import saving and industrial investment at home.

For the future my stance on monetary policy is unchanged. First, I am concerned to ensure that industry's requirements for finance are not crowded out


by other demands, notably by those of the public sector. This is the financial counterpart of the Government's concern that resources should be available in the economy for industrial investment during the upturn, as the Public Expenditure White Paper makes clear.

Second, it remains my aim that the growth of the money supply should not be allowed to fuel inflation as it did under my predecessor. To this end, I aim to see that the growth of the money supply is consistent with my plans for the growth of demand expressed in current prices. If it became clear that this aim were not being achieved, I would be ready to use the appropriate mix of policies—not necessarily monetary policy alone—to redress the situation. After two years in which M3 has grown a good deal more slowly than money GDP, I would expect their respective growth rates to come more into line in the coming financial year. But, as we have seen over the last year, there can be big fluctuations in the growth of money supply from quarter to quarter, and this will no doubt be true of the future.

Pay and Prices

The most encouraging developments of the last 12 months have been those on inflation. In my Budget speech last year I made it clear that I saw success in reducing the rate of inflation, and the rate of wage increases in particular, as the key to achieving our objectives of higher employment and a stronger balance of payments. But at the time I presented that Budget the rate of wage increase was far in excess of the rate of increase in prices and threatened to destroy any hopes of getting inflation under control. As I said then, we could hope to reverse that trend only by a sustained act of will involving all sections of the community.

That act of will came three months later. The £6 pay limit was the TUC's response to the nation's need. It was an act of great responsibility on the part of the whole trade union movement—an act which has been sustained with impressive unanimity ever since. With only a few months of the current wage round left to run, we know of no instance where wages are being paid in breach of the £6 pay limit. In consequence, confidence in our future has been transformed both

at home and abroad. There is no man or woman in the country who has not benefited as a result.

I forecast in my Budget speech last year that the annual rate of inflation in the second half of 1975 would be between 12 per cent. and 16 per cent.; in fact it was 14 per cent., compared with 38 per cent. in the first half. The £6 pay limit guarantees that our rate of inflation will continue to fall in 1976. This will be a massive improvement, but we shall still have a long way to go before our inflation rate is down to the levels of our competitors abroad. In the OECD as a whole, inflation averaged 8 per cent. a year in the second half of 1975 compared with our figure of 14 per cent. Therefore, we cannot relax our efforts. Further progress depends crucially on the pay limit for the next pay round, to which I shall revert later.

ANALYSIS AND STRATEGY

Our recent achievements have been encouraging and there is every reason to believe that we can make further substantial progress in the coming year. But this Budget must also grapple with the problems of the medium term. It must lay the foundations for a strategy which will enable Britain to enter the 1980s with full employment, stable prices and an economy in balance both at home and abroad.

The next few years should see the world recovering from the deepest recession since the 1930s. But there are significant differences between this and earlier upswings in the trade cycle. All the major industrial countries entered the recession with exceptionally high rates of inflation and, despite the severity of the recession, none of them except perhaps Germany has yet succeeded in reducing its inflation to the level it would have regarded as tolerable a few years ago. Partly for this reason, very few of the industrial countries are expected to restore employment to their normal post-war levels by 1980. Moreover, many of the countries which succeeded in achieving a surplus on their current account after the increase in oil prices expect reduced surpluses, or even deficits, as their recovery gets under way. In other words, the whole of the industrial world expects more difficulty than in any


earlier recovery in reconciling the basic objectives of economic policy—full employment, stable prices and external balance.

I have emphasised this fact because, as a nation exceptionally dependent on foreign trade, Britain cannot achieve immunity from economic trends in the outside world. The problems we face in Britain today are different only in scale from those of other industrial countries. We can hope to solve our problems in full only if our trading partners succeed in solving theirs. Indeed, if any one major industrial country were to seek to solve its problems at the expense of the others we could expect to see emulation and retaliation spreading rapidly in a chain reaction. The whole world could be plunged into a prolonged economic slump like that of the 1930s. That is why the British Government have taken the lead, both in the Commonwealth and the European Community and in other international organisations, in organising collective discussion of our common plight in the hope that we can devise together an international strategy for dealing with what has plainly become an international problem.

Yet, though our immediate economic problems are similar in nature to those of our trading partners, the fact remains that they are far greater in scale than most. Even before the oil crisis hit us in 1973, growth had come to a halt in Britain, our balance of payments deficit by the end of 1973 was already racing up, and inflation, fuelled by a grossly excessive increase in the money supply, was already rising rapidly. On top of this, the increase in oil and other commodity prices cut our real national income by nearly 5 per cent.

Though we have made progress in dealing with this bitter legacy, Britain nevertheless enters the phase of world recovery with handicaps none of her partners carries. It will be even more difficult for us than for them to achieve full employment together with external balance. We can do it only if we produce a major shift in the use of our resources away from private and public consumption towards exports and investment. We have made a good start on this but there is still a long way to go.

There is no short cut to a solution of our problems. Whatever adjustments the Government may make in their fiscal or monetary policy, our success depends in the end on improving the performance of our manufacturing industry. It is because our manufacturing industry has declined since the war both in size and efficiency by comparison with those of our competitors that our economic record since the war has been inferior to theirs. The Government have launched new policies for improving our industrial performance in co-operation with the leaders of both sides of industry. They have limited the demands of the public sector so as to make room for industrial expansion. But in the end the problem can be solved only at the level of the individual company and plant.

How fast we move towards a solution depends on everyone in industry—managers, workers and salesmen alike. The target the Government have set themselves is to get unemployment down to 3 per cent. in 1979. As I told the House the other day that would require an increase in GDP of about 5½ per cent. a year in the three years 1977, 1978 and 1979 and an increase in manufacturing output of about 8½ per cent. a year in the same period. We have never maintained such a rate of increase over so long a period in the past. But it is not impossible today, given the exceptionally low level of capacity use from which we start. Nevertheless, it will require a rapid improvement in our industrial performance in every field and at every level.

I see that some hon. Members have described the rates of growth required as implying an economic miracle. Yet many of our competitors have achieved these rates of growth in similar situations since the war. They have already experienced their economic miracle—and they have managed thereafter to sustain levels of performance consistently superior to ours. I do not believe that our countrymen lack any of the essential qualities which so many of our European neighbours, under Governments of various political persuasions, have been able to apply to the solution of their economic problems.

In helping to create the conditions for the improvement in our industrial performance which is needed if we are to


return at a tolerable speed to full employment, this Government must learn from the lessons of experience under other British Governments since the war. For, like all earlier Govenments in similar situations, we face two major constraints on growth. Each of them by itself could frustrate our efforts to achieve the necessary speed in our recovery unless the right action is taken in time. Neither can be reduced through action by the Government alone.

Those constraints are, first, the risk of temporary shortages of capacity—skilled manpower, capital equipment, raw materials, components and so on—which I may describe as the bottleneck problem and, secondly, the risk of an unacceptable deficit on the balance of payments. The first constraint may bring the second in its train if, as happened under the last Government, too much demand is pumped into the economy too fast. In that case the result may be, as it was in 1973, a complete seizure in domestic production followed by an intolerable balance of payments deficit as the frustrated demand sucks in imports.

This Government have long recognised the need to deal with the bottleneck problem. They began to take action in the Budget a year ago by concentrating assistance on industries like machine tools which have been unable to expand their activity sufficiently in the past, and by introducing measures to accelerate investment projects. They have also doubled the amount of money available for industrial training. The first survey of leading sectors in the economy, which will be drawn together by the National Economic Development Council in two months' time as a basis for our industrial strategy, should help us to identify other areas where action is needed—whether by the Government, by management or by the unions—in order to eliminate bottlenecks in advance of recovery.

Bottlenecks can arise not only from bad planning by Government or management. They can, and all too often do, derive from bad industrial relations leading to the sort of stoppages in a components factory which can bring a whole industry to a halt. Recent events illustrated more forcibly than any abstract argument that it can be highly dangerous to expand domestic demand without

a firm assurance that our industry has both the will and the capacity to meet it. Otherwise, the only result will be to establish foreign manufacturers in a position in the British market from which it may be immensely difficult to dislodge them later.

So far as the balance of payments imposes a constraint on growth, there is only one answer—to base expansion in the first place on exports and import substitution and not on a general reflation of domestic demand. Whatever other issues may divide rival schools of economists who contend so publicly for our attention these days, they all agree that a massive reflation on its own could lead only to disaster. It would reduce unemployment temporarily but at the cost of increasing the balance of payments deficit intolerably. This would soon exhaust our ability to finance our external deficit—and thereby force us into renewed deflation and a higher level of unemployment than that from which we started.

The balance of payments problem is so important a constraint on the speed at which we can return to full employment that I hope the House will forgive me if I discuss it at some length.

The only reliable means of removing the balance of payments constraint in the longer run is to ensure that our manufacturing industry performs much better in the future than it did in the past. This is often expressed by saying that it must compete more effectively both at home and abroad. But effective competition has many dimensions; it is not just a question of price—otherwise Germany would now have a substantial deficit instead of a substantial surplus. It is a question of producing the right goods, of the right quality, delivered at the right time, and of devoting the right amount of effort to selling those goods, at home as well as abroad, as well as of selling them at a price that offers good value to the buyer.

Compared with our situation at a similar point in past cycles, we have some things working in our favour. Our costs are competitive and we have spare capacity both in resources and in manpower. So we are well placed to sustain an expansion which is led by exports. But we shall not succeed in this unless we hold down the domestic claims on


our resources, particularly consumption, both private and public. As I mentioned earlier, since the third quarter of last year the volume of our manufactured exports has been increasing at an annual rate that is well into double figures. At the same time, the volume of finished manufactures which we import has been relatively stable and is still slightly below the level reached in 1973. This represents an excellent first step towards export-led growth.

Those who argue that we in Britain are infected with an excessive and increasing import propensity—by this they mean that in any period of recovery we are bound to increase our manufactured imports much faster than our exports—forget that our imports of manufactures have grown at an intolerable rate only in those particular years when the impatience of certain Chancellors of the Exchequer, and their urgent need to restore electoral popularity—I forbear to identify their party—led them to reflate too fast or to run the economy at an excessive pressure of domestic demand. These were the two-year periods of 1958–60 when the volume of semi-finished and finished manufactured imports grew by no less than 51 per cent.; of 1962–64, when it grew by 32 per cent.; and in 1971–73, when it grew by 45 per cent. [Interruption.] This is the legacy we inherited. It is reasonable to assume, therefore, that with our present level of costs we should be able to contain the growth of manufactured imports within acceptable limits if we avoid overheating the economy—either through maintaining an excessive pressure of demand, or through attempting too rapid an expansion.

I know that some economists take a different view. But even if I shared their pessimism I would find it difficult to accept their prescription. They argue that Britain would have to cut her imports of most manufacturers by many billion pounds worth a year below what would otherwise have happened, and that the necessary controls would have to continue to 1980 and beyond. Such a large-scale and semi-permanent restriction of imports would mean breaking Britain's treaty obligations to the General Agreement on Tariffs and

Trade, the International Monetary Fund and the Community. It would mean telling the world that we planned to base our own growth on the penetration of foreign markets without allowing other countries the same freedom to penetrate our own.

It is difficult to believe that under present conditions—or, indeed, under the conditions of the next few years as I have described them—Britain would be allowed to get away with a policy of that nature. On the contrary, such action might well lead to an international trade war on the scale of the 1930s.

For that reason, I do not believe that general and prolonged import controls offer any solution to our problems. Selective import controls are, of course, another matter. [HON. MEMBERS: "Oh."] Oh, yes. Although they cannot provide an answer to the macro-economic problems, they may have a valuable rôle to play in protecting particular industries whose survival is threatened by excessive imports, which cause market disruption. The Government have announced several such controls in recent months and we shall remain alert for other cases where they may be appropriate. But there is no escape from the hard fact that the balance of payments constraint on the speed at which we can return to full employment can be removed only by making British industry more efficient in all the respects which affect its sales both at home and abroad.

Our industrial policies aim to improve the performance of British manufacturers in this broader sense. Above all, they aim to increase productivity since this is the best way of improving price competitiveness provided that the higher productivity is not creamed off in higher wages or higher profits.

We have seen sterling depreciate in recent weeks as the inevitable response to the fact that our rate of inflation has been above that of our competitors. But depreciation of this nature is no answer to our problems. It increases the cost of living and thereby in itself generates new inflationary pressures. It is only by reducing industrial costs through higher productivity and a lower growth of incomes that we can find a lasting solution to the balance of payments constraint on economic growth.

As I have said, the responsibility for meeting both of those conditions lies in the last resort in the individual boardroom and on the individual shop floor. It lies on every man and woman who works in industry at every level. But the Government have the responsibility for helping to create the economic and social environment in which the British people can produce the necessary response.

Before outlining my detailed proposals, I should like to give the House a brief account of how I see the economy developing in the next year or so on the assumption of present taxation rates, present expenditure plans and the present rate of pay increases.

First, I would expect total output to grow quite briskly, perhaps by about 3½ per cent. in the next 12 months. Within this total the pattern of resource demand would be developing very much as I have suggested it should if we are to bring the economy into better balance in the medium term. The strong elements of demand would be exports, which would grow at perhaps 9 per cent. under the impulse of the rapid growth in world trade, stock-building and private fixed investment, which might grow at 6 to 7 per cent. By contrast, private consumption would be rising at only about l½ per cent. and public expenditure on goods and services would be approximately unchanged.

We have to shift the distribution of resources over a sustained period in roughly this pattern. I should not want to change it materially in this Budget. And since the rise in output would be approaching the rate required to meet my objective for unemployment by 1979, I do not think that it would be right to add much to aggregate demand. We must approach the period in which a higher growth rate is required not with a sudden spurt but with a steady and gentle acceleration.

It follows from this and from the constraints I have described that my Budget must not on balance add much to demand or change its pattern. Instead, my Budget will have two overriding objectives, both concerned with the essential improvement in our industrial performance: first, to create the conditions in which output and productivity are most

likely to increase; and, second, to create the conditions in which wage costs can be kept as low as possible without unnecessarily reducing the real value of the workers' take-home pay.

So far as industrial efficiency is concerned, I am proposing a series of measures which I believe will encourage industry to maximise its output and productivity. So far as industrial costs are concerned, I am proposing two sets of measures. The first will take effect immediately, since I believe that they will help to create a suitable climate for the coming discussions on the next wage round. But I shall ask Parliament to approve the second set of measures only when the TUC has made its recommendation on the new pay limit later in the summer.

INDUSTRIAL POLICIES

I start with some proposals which are intended to help in improving the efficiency of our manufacturing industry and its ability to meet the coming upturn in demand.

Both sides of industry have welcomed the approach to industrial strategy which we published last November and are co-operating fully in the survey of 32 key industrial sectors, to which the National Economic Development Council has agreed to give priority. Reports on these sectors will be presented by the economic development councils and working groups concerned in June. As I have already said, the Government are particularly concerned to identify potential bottlenecks which could constrain production as the economy recovers. Meanwhile, we have pleged ourselves to provide an appropriate fiscal and economic environment for manufacturing industry so that it can finance the necessary increase in investment and obtain the manpower it will need during the recovery.

It has been put to me many times that industry needs a stable framework in which to operate and that this is of greater importance than incentives which may be here today and gone tomorrow. Continuous alteration of the rates, structure or reliefs of corporation tax, however well-intentioned, are bound to disrupt planning.

My first objective, therefore, in this field is to strengthen the stability of the tax environment. There are three areas where I can today offer a new degree of certainty.

Stock Relief

The special tax relief for increases in stocks which I introduced in November 1974 has been of great benefit to industry. However, some business men believe that the temporary nature of the scheme reduces the value of the relief, and others fear that the scheme may be withdrawn without anything to replace it so that all the tax which has been deferred on increases in stock will suddenly have to be paid. In particular, some say that the need to create balance sheet reserves against the possibility of the relief being withdrawn is reducing some companies' ability to borrow.

In our debate on employment on 29th January I did my best to dispel fears of this kind. Now I can go further. I am anxious to introduce as soon as I can a scheme of relief which will be a permanent feature of the tax code. It is, however, clear from recent discussions between the Inland Revenue and representatives of industry and the accountancy profession that there are legitimate differences of view about the form which a permament relief should take. I am naturally anxious to carry industry and the accountancy profession with me in this matter, if I can; and, since what we are considering will be a permanent part of our tax system with important implications for the operations of British industry, I think that it is worth taking a little time to get it right.

I therefore propose that the relief should continue in substantially its present form for two more years while the Inland Revenue is consulting industry and the professions about its permanent form. But I do propose one change. Its purpose is to strengthen the incentive for investment. There has been increasing criticism that the profits deduction operates unfairly against companies investing in fixed assets, because the profits base to which it applies is calculated before deducting depreciation allowances. I therefore propose that in future profits for this purpose shall be calculated after deducting allowances for depreciation.

This change would be an expensive one unless I sought to compensate for it in some way, and I therefore propose to do that by increasing the size of the profits deduction from 10 per cent. to 15 per cent. Even so, the benefit of stock relief to the company sector as a whole will increase by some £65 million in a full year. The real importance of the change is that the relief will now be concentrated more heavily on firms which are expanding and investing.

As a result of what I have just said, it must be clearly understood that there will be no question of any clawback with respect to tax relieved under this scheme in the case of all those companies whose stock valuations and rates of investment are maintained or increased. This means that for the great majority of companies stock relief really implies a deferral of tax not only for some short or limited period but into the indefinite future. I can also give an assurance that, if we decide ultimately on a different form of relief, we shall ensure as far as possible that the transition from one system to the other will not significantly affect the cash flow of individual companies.

Depreciation

The Sandilands Committee on Inflation Accounting strongly recommended that the present system of 100 per cent. capital allowances should be continued and suggested that the commitment to the system which was given by my predecessor in 1972, and which runs to the end of 1977, should now be extended. I accept this recommendation, and I propose that the main structure of the present system of capital allowances for fixed investment should continue in its present form. This is not to rule out any minor changes that may be necessary; but I cannot accept the representations that have been made to me for extending capital allowances to commercial buildings. I do not believe that the benefit from such a change would justify its heavy cost to the Exchequer.

Corporation Tax

The continuation of stock relief and the present system of capital allowances means that substantially the whole of any profits which a manufacturing company reinvests in its business, whether in fixed


or in working capital, will effectively be relieved from corporation tax. Given the importance of expanding and strengthening our manufacturing base, I believe that this is a development which the whole House will welcome.

Uncertainty about the future structure of corporation tax is one of the factors which have unsettled business confidence, The present imputation system is not the one which I would have preferred, but I have to take account of the high cost of any change in terms of disruption and diversion of effort in industry. For these reasons, I have decided not to pursue further the idea of a return to the so-called classical system of the corporation tax—the more so since the arrangements we now have provide, in effect, the same powerful incentives for the retention of profits for the purpose of investment as the original corporation tax introduced by my right hon. Friend in 1965.

I also do not propose any change in the rates of corporation tax. Given the improved financial prospects for the company sector, I see no case for reducing the rates. But I am anxious to assist small companies where I sensibly can, and I therefore propose to increase the profit level by which small companies are defined for the purpose of the preferential rate of corporation tax from £25,000 to £30,000. The limit for marginal relief will be increased from £40,000 to £50,000.

Finance for investment

I now turn to the question of company finance. Although the financial position of companies has greatly improved in the last 12 months, I am concerned that, as world trade expands and new trading opportunities arise, none of those opportunities should be missed by creditworthy companies because of a shortage of available finance. In part, this is a question of avoiding what has become known as crowding out, and I have already mentioned my concern to avoid this. But in part it is also a question of ensuring that external finance is available for industry in the form which it wants.

The renewed confidence of investors, created in large part by this Government's economic policies, revived the equity market last year so that it was possible for companies to raise a record

amount—some £1¼ billion—in equity capital. Over £700 million of this was for manufacturing industry.

The debenture market has not yet revived in the same way, but I hope that it, too, will once again become an important source of finance for investment, since medium-term interest rates should fall as the next round of our counter-inflation policy is seen to succeed. Discussions in the NEDC have suggested that the existence of transfer stamp duty might inhibit such a revival because the duty reduces the marketability of loan stocks and so their attraction to investing institutions. I therefore propose to abolish the stamp duty on transfers of fixed-interest stocks, excluding convertible stocks, at a cost of £10 million in a full year. This will take effect from 17th May in time for Stock Exchange settlements due on 25th May.

I also welcome the growth of medium-term finance for industry. In part this has come from Finance for Industry under the expansion of its resources arranged in November 1974. In part it has come from the banks, no doubt spurred on by the existence of FFI as a competitor. I understand that the facilities offered by the clearers in this way have almost doubled in the last two years.

I have, however, been concerned to ensure that ample finance of this kind continues to be available. Finance for Industry still has available for commitment a substantial part of the additional £1,000 million announced in November 1974. At my request, the Bank of England has discussed with the London and Scottish clearing banks their ability to provide this type of finance in future. The Bank has been assured that the clearing banks are still able to increase this type of lending. Nevertheless, in the longer term the availability of such finance longer term the availability of such finance might conceivably be limited by prudential liquidity considerations.

The Bank of England and the London and Scottish clearing banks have therefore agreed to explore the extent to which such constraints on bank credit might need to be alleviated and, if so, the means by which this could be achieved, such as the possibility of making medium-term loans by the


clearers eligible for refinance at the Bank of England. These two developments will help to ensure that any creditworthy company should not be held back from worthwhile investment by the absence of finance in a suitable form.

Looking to the longer term, I want to examine the case for establishing some permanent arrangements for encouraging counter-cyclical investment. I therefore welcome the decision of the recently-established NEDC Committee on Finance for Investment to undertake an immediate study of the feasibility of countercyclical and other investment reserve schemes. I realise that there are plenty of difficulties about any such scheme—including the fact that we already have very generous tax incentives for investment.

I appreciate that the availability of finance is by no means the most important determinant of investment. The outlook for demand and the prospect of profits are both crucial to investment decisions. But, given the undoubted need for a higher level of investment to halt the process of industrial decline, and the need for greater stability in the pattern of investment to make the economy more manageable through the trade cycle, it is essential to study every possibility fully and carefully—particularly the concept of an Investment Fund such as already operates sucessfully in Sweden. If an effective counter-cyclical scheme can be devised, it could be an important element in our longer-term industrial strategy.

Selective support for investment

In the meantime, we are pressing ahead with specific programmes for improving our industrial base under Section 8 of the Industry Act. A total of £285 million has so far been allocated for accelerated projects and industry schemes. We have identified other sectors which may be suitable for this approach—for example, parts of the electronics and automation industries; these will be fully appraised and costed over the next two months. Not all will necessarily survive this scrutiny, and others may emerge. After consultation with my right hon. Friend the Secretary of State for Industry, I now propose to

allocate a further £40 million to such industry schemes.

Once decisions have been taken, the industries concerned will be coming forward with plans which should result in investment expenditure from the autumn of this year. Government funds will not, however, be needed until the company investment is well under way; moreover, some funds are in hand from the tranche announced only last month. Consequently, although the relevant expenditure will be going ahead later this year, I do not envisage any significant drawing against this new tranche until early in 1977.

Price Code

I recognise that decisions on the future of price control will also be of crucial importance to business confidence and investment. As the House knows, the present Price Code expires at the end of July, and my right hon. Friend the Secretary of State for Prices and Consumer Protection will be discussing with both sides of industry how it should be changed. I cannot predict the outcome of those discussions; but I can give an assurance that in reaching decisions the Government will take full account of the needs of industry, and in particular of the need to allow a sufficient recovery of profits to encourage the new investment we need and the new jobs which the investment will bring.

Manpower Policies

The measures which I have announced so far are intended to give companies the confidence to invest and to ensure that the necessary finance is available. A greater volume of industrial investment, together with fuller and more efficient use of the investment we already have, is of critical importance to the solution of our industrial problems and to our strategy for a return to full employment. In the short run, however, there is a risk that action in these fields and the stimulus of expanding trade will not operate fast enough to save all the jobs which will be needed in the upturn. I have therefore looked hard for measures which will act directly on the level of employment without stimulating inflation or imposing too heavy a burden on the public sector borrowing requirement. As the House is aware. I announced a series


of such measures in September and December last year and again last February.

The schemes for increased training and job creation are continuing, but there is more that can be done. I fully share the concern of the trade unions at the present level of unemployment and the economic and social costs which it entails. I have therefore decided, following a proposal in the TUC Economic Review, that the amount paid per head under the temporary employment subsidy, at present £10 a week, should be doubled to £20 a week, which represents about one-third of average earnings in manufacturing.

The temporary employment subsidy is already preserving jobs at the rate of about 60,000 a year, covering over one-quarter of the overall total of eligible redundancies occurring within industry. This increase in the amount payable should make it substantially more attractive to firms as an alternative to declaring redundancies. The increase will operate for new applications received from today, and for existing cases from the date of their next three-monthly renewal.

I also propose to extend the scheme to the end of this year. This means that instead of ending in August—a year after it began—the scheme will now be open for new applications until the end of the year and payments will be made throughout 1977. Similar changes are being made to the corresponding scheme which applies in Northern Ireland.

The higher rate of subsidy will have time to produce a substantial effect. We estimate that this will preserve another 60,000 or so jobs between now and the end of the year, though rather more than half of these may be at the expense of other jobs. The gross cost will be about £95 million up to the end of 1977 and about £60 million in this financial year, although as I have pointed out before, because of the offsetting savings from unemployment benefit and additional tax revenue, the net cost to the public finances is likely to be only about one-third as much, or £30 million over the whole period. This decision will reinforce and extend a scheme which has already proved its worth and which is becoming well known to employers. It will provide jobs for those who would

otherwise have been made redundant, until the recovery is more solidly established.

I can also announce a further extension of the Community Industry Scheme which is designed to help socially disadvantaged young people who have difficulty in getting or holding down a job. I announced in December last year that 1,000 additional places would be provided up to March next year, and we have now decided that these can be continued beyond that date if there proves to be a need for them. I am also putting the scheme on the same footing as the job creation programme, by enabling Community Industry to give sponsors—mainly local authorities—a grant towards the cost of materials, of up to 10 per cent. of the labour costs of the project. These changes will cost about £2·3 million in a full year and £500,000 in 1976–77.

Taxation of motoring

I now turn to tax instruments which affect particular sectors of industry, beginning with the taxation of motoring. One way in which the Government must demonstrate the priority they give to manufacturing industry is by forgoing changes which might otherwise have been desirable if they are likely to inflict damage on important sections of industry.

As the House will be aware, the Government have been considering the possibility of abolishing vehicle excise duty on passenger cars and recouping the lost revenue by raising the tax on petrol. Since I rejected this change a year ago, I am bound to confess that it has appeared increasingly attractive when looked at in isolation from its industrial consequences.

But in reaching a decision I also had to take account of the powerful industrial arguments which point to retaining the duty. To abolish it and make a compensating increase in petrol tax would immediately encourage people to change their present cars for smaller ones, or at least to prefer a smaller model when the time comes to buy a new car, and it is amongst the smaller models that our car industry is particularly vulnerable to imports. I cannot make a change, whatever its merits on other grounds, which would further expose us to imports of foreign cars and to the loss of jobs in


our own industry. On these grounds I have decided against abolishing the duty. Our industrial policies must have first priority.

I propose, however, to make some minor changes in the relevant legislation. In particular I am altering the criteria for exemption for disabled passengers, because the mobility allowance scheme was designed to supersede other forms of mobility assistance to the disabled.

Again reflecting the priority we must give to industrial policy, I have decided against relaxing hire-purchase restrictions on motor cars in present circumstances since this would be most likely to stimulate imports. The Government have, however, decided to abolish hire-purchase restrictions on motor caravans, where similar considerations do not apply. An Order will be made by my right hon. Friend bringing this into effect from midnight tonight.

VAT higher rate

I turn now to value added tax. In my Budget last year I extended the 25 per cent. higher rate, which already applied to petrol, to a wider range of goods, including items such as domestic electrical appliances, television sets and boats. I recognised at the time that not all these items could be regarded as luxuries, but I concentrated the higher rate on the less essential items so that the extra burden of taxation would fall least on those with low incomes. This formed part of a series of changes in indirect taxation which were designed to reduce consumption and so assist in bringing the economy into better balance.

The higher rate of VAT has produced an extra £400 million in 1975–76. Customs and Excise has monitored the impact of the tax since its introduction, and I have received representations about its effect from the TUC, the CBI, the Chairman of the EDC for the electrical appliances industry and others. Although the severity of the 25 per cent. rate was necessary in the especially difficult circumstances of last year, I have decided that in the longer term the 25 per cent. rate is too high. It could damage some parts of manufacturing industry and jeopardise employment.

I have considered carefully all the representations I have received, including those which advocated abolishing the higher rate altogether. However, there are strong arguments against doing this. A return to an 8 per cent. standard rate of VAT would involve a big loss of revenue which would have to be recouped in other ways. To do this by increasing the standard rate to 10 per cent.—a course which has been advocated by the right hon. and learned Member for Surrey, East (Sir G. Howe) and his right hon. and hon. Friends—would put up the prices of many everyday items which are purchased by ordinary working people and by pensioners and other less-well-off members of the community. I therefore propose to leave the standard rate of VAT at 8 per cent.

In deciding the new figure for the higher rate, I have taken several factors into account. If demand for those goods now taxed at 25 per cent. were raised too rapidly, there would be a real risk that British industry could not cope and that the demand would be met by a big influx of imports which would then be difficult to dislodge. This is exactly what happened when the previous Administration removed hire-purchase controls in a single step in the summer of 1971. British industry is still paying for that mistake. I am determined not to repeat it.

I therefore propose to reduce the higher rate, as from Monday next, to 12½ per cent. In choosing this figure I have taken account of the needs of smaller businesses, including retailers. It has been pressed on me, for example, that the 25 per cent. rate has had a particularly adverse effect on smaller businesses such as boat builders and firms which service electrical appliances. The reduction which I propose should be of great help to them—and particularly to poorer people who may have refrained from getting their appliances serviced when the rate was 25 per cent.

I also understand that the many thousands of retailers who sell higher-rated goods prefer VAT rates which provide convenient fractions for calculating. Twelve and a half per cent. gives such a fraction—one-ninth of the tax-inclusive price. At the same time, it is a rate which is more than 50 per cent. higher


than the standard rate and, therefore, produces a useful amount of additional revenue—about £140 million in a full year.

The reduction to 12½ per cent. will apply to all goods and services at present covered by the higher rate. Leaving aside petrol, the cost will be £175 million in a full year.

For a number of hard-pressed sectors of United Kingdom industry, this will provide a welcome boost to their domestic market. Notably in the important market for television sets, I am concerned that the United Kingdom manufacturers should benefit. For colour sets, where Japan is the main source of imports into the United Kingdom, the need for a continuity of restraint is well understood between the Japanese and ourselves. But we imposed surveillance licensing on imports of television sets last December, and we shall be watching the position closely in case this understanding proves insufficient.

Taxation of Petrol

The higher rate of VAT applies to petrol, and if I did not take offsetting action on petrol duty the reduction to 12½ per cent. would reduce the price of petrol to the motorist. At a time when it is essential to conserve oil, I cannot allow this to happen; indeed, I believe that I should go further and more than offset the reduction of VAT. I therefore propose to raise the hydrocarbon oil duty on all road fuel by 7½p a gallon. This will mean a net increase of about 1p a gallon on petrol for the private motorist.

It will have two other consequences. First, the way VAT operates makes it very advantageous to misuse petrol bought on business account for private motoring. My proposals will greatly reduce this advantage. Second, the duty on fuel for diesel-engined road vehicles—derv—will also rise by 7½p a gallon. However, since the increase in oil prices began two and a half years ago the incidence of taxation on derv has fallen sharply, so that the incentive for users of this particular road fuel to economise has not been strengthened by taxation.

The proposed increases will come into effect at 6 p.m. on Friday 9th April, but it is not expected that prices will go up

before Monday 12th April. This increase will not cause increases in the cost of stage bus services. Under existing legislation, there will be an increase in the rebate of duty paid to stage bus operators equivalent to the full amount of the duty increase.

The cost of the reduction in the higher rate of VAT on petrol will be £185 million in a full year. But my proposals for road fuel duty will offset this and produce a further net increase in revenue of £265 million in a full year. Overall, therefore, my proposals for the higher rate of VAT and for road fuel duty will produce a net revenue increase of £90 million in a full year.

MISCELLANEOUS TAX CHANGES

Other indirect tax changes

Increases in other indirect taxes would add to the Retail Price Index and I have been tempted to conclude that I should take no such action in a year when the fight against inflation is so important. But there are important arguments in the opposite direction. Inflation over the past five or six years has substantially shifted the balance of our tax system from indirect to direct taxation, since the yield of income tax rises with rising earnings while the yield of the specific duties is not linked to the inflation rate. In addition, increased revenue in this area will help make room for the socially desirable expenditure I shall be describing later in my speech.

Because the Customs and Excise revenue duties on alcoholic drinks and tobacco are levied as specific sums on given quantities of the goods concerned, their impact has fallen heavily as a proportion of the selling price. I am therefore proposing modest increases in these duties. For beer I propose an increase which, together with the consequential VAT, will result in a price increase equivalent to 1p a pint on average. For spirits my proposal will represent an additional 32p, including VAT, on a standard bottle of whisky or gin. For wine I propose increases which will represent an addition, including VAT, of up to 12p a bottle on fortified wines and 6p on a standard bottle of table wine and of most made-wine. These changes will be


brought into effect for goods which are cleared from midnight tonight.

I also propose a small but nevertheless worthwhile new excise tax. Most ciders and perries are not at present taxed and I think it only right that they should bear some duty like other alcoholic drinks. I therefore propose that from 6th September these ciders and perries should be charged with a new excise duty of 22p a gallon. Allowing for consequential VAT, this will be equivalent to about 3p a pint. I propose to exempt small farmer producers from the new duty.

These revenue duty changes will produce in a full year an additional £95 million from beer, £25 million from spirits, £25 million from wine and £10 million from cider and perry, and an additional £10 million from the 8 per cent. rate of VAT on these goods.

There is a strong case on health grounds as well as revenue grounds for increases in the taxation of tobacco. I propose both some increases in the level of taxation and a first step in a restructuring of the duty system. Our present duty is charged basically on the weight of unmanufactured leaf. This is a system which has served us well for many years, though it has two disadvantages. First, the real burden of the specific duty falls at times of inflation, giving an unwelcome boost to consumption of a product dangerous to health. Second, because the duty falls on the unmanufactured leaf it has not been possible to discriminate between different types of smoking product.

When we joined the EEC we accepted an obligation to replace this duty by the end of 1977 with a duty falling not on the raw material but on the finished product. So far as cigarettes are concerned the duty is to be levied partly as a proportion of the retail price and partly on the number of cigarettes. However, this is a major change and if we introduced it overnight at the end of 1977 there could be a degree of disturbance to our existing market which I would find unacceptable. I have therefore decided to make a start in moving to the new system now, and in this Budget a part of the existing specific duty will be replaced by a new excise duty on the finished product.

I envisage that at the final stage the duty on cigarettes should be predominantly ad valorem. For a start I am setting the new duty at a rate of 20 per cent. of the retail price and reducing the existing leaf duty by such an amount as will produce a net increase in the total yield. Because of the change in the system it is difficult to provide precise figures for the effects of the increase on the whole range of different kinds of cigarettes, but I expect that the total tax burden on the most popular sizes will rise by 3p or 3½p for a packet of 20.

I make no apology for this increase. Many people who are rightly concerned about the health of our nation will regard it as inadequate. I know that many of my hon. Friends do. However, I had to pay some regard to the level of prices and to the burden on those, particularly the poorer, who find it difficult to cut back on their smoking.

There are administrative difficulties about charging an ad valorem duty at this stage on other forms of manufactured tobacco, and for these the new end-product duty will be based on weight. For cigars and hand-rolling tobacco I am proposing to set the balance of the old and new duty rates at levels such that there will be increases in line with those for cigarettes. However, there will be no overall increase in the average tax burden on pipe tobacco. This is probably the least hazardous form of smoking and in addition many pipe smokers are retired or about to retire, or to be redeployed, and may therefore face financial problems.

In order to allow time for the administrative arrangements for the new duty to be worked out these changes will come into effect from 10th May. The net increase in the yield, including the consequential VAT, will be £115 million in a full year.

Together all these indirect tax changes will add about ¾ per cent. to the Retail Price Index.

Avoidance and Evasion

Nothing is more offensive to the vast majority of men and women who pay their income tax automatically through PAYE than the knowledge that a small minority have scope for evading and


avoiding taxation either through limitations in the powers of the Revenue or through loopholes in the law. I propose to take steps to deal with both these problems.

First, tax evasion—and by that I mean tax-dodging which involves breaking the law of the land. Evasion is not only unfair to the many millions of taxpayers who pay their tax bills honestly; it brings the whole system into disrepute. I am aware of the anxiety that has been expressed about the current extent of evasion and I have now decided that the Inland Revenue should be given additional powers to enable it to uncover evasion more effectively.

It is important in this area to weigh the requirements of an effective and fair tax system with the proper concern, shared by hon. Members on both sides of the House, for the privacy of the citizen.

I believe that the proposals I shall make strike the right balance. My main proposals are as follows. I have decided to strengthen the powers which require a person to produce for inspection documents in his power or possession which bear on his liability to tax. There will be a parallel power to obtain from a taxpayer's spouse and children documents bearing on his own liability. Where a person is carrying on a business the Inspector of Taxes will be given power to require the production of relevant documents from other businesses, including banks, in order to determine that person's tax liability. But the power to approach any person other than the taxpayer himself will be exercisable only with the consent of a General or Special Commissioner of Income Tax.

These proposals represent the minimum that is needed to help the Inland Revenue to deal with evasion and to be fair to ordinary working people who pay their tax under PAYE.

In other democratic countries in Europe and North America the Revenue authorities already have such powers. Indeed the powers available in the United States, Canada and Australia are a good deal wider than those I now propose. I think the vast majority of taxpayers will feel it was high time that in this respect we were brought more into line with our friends and competitors.

Leasing Partnerships

The Finance Bill will also contain measures to deal with an avoidance scheme by which wealthy individuals have been able, by contrived arrangements, to use the 100 per cent. first year allowance given for capital investment simply as a means of minimising tax on their personal incomes. My hon. Friend the Financial Secretary to the Treasury explained last December in a Written Answer that where the asset giving rise to the relief is leased or chartered by certain kinds of partnership, the relief would be allowable only against the rental income. I propose to apply the same restriction in other circumstances where wholly artificial arrangements have been entered into for tax avoidance purposes and the relevant expenditure is incurred after today.

Fringe Benefits

I undertook last year to review the legislation on fringe benefits, following the start we made in last year's Finance Act with the legislation on medical insurance and vouchers.

As the Diamond Commission showed in its Report on Higher Incomes from Employment, the two main benefits provided by firms for their employees are cars and loans at a nil or low rate of interest. The provision of a company car for a director or an employee earning over £5,000 is already taxable; but the rules for measuring the benefit derived from its use for non-business purposes do not in most cases bring into liability anything like the real value to the beneficiary.

I propose therefore that this benefit should in future be measured by a scale which will vary with the size of the car and will reflect standing charges and running costs borne by the employer in respect of the employee's private use of the car. The substitution of a scale for the present rather cumbersome method of measuring car benefit" will bring a much-needed simplification into this part of the tax system and will also make it more equitable.

The scale will not take effect until 1977–78, and in view of the importance of not adding to the difficulties of the British car industry it will be phased in


over a period of two years, so that its full effect will not be felt until 1978–79. In the meantime my right hon. Friend the Secretary of State for Industry will be consulting the motor industry on the industrial implications of this decision.

The benefit of low-interest or interest-free loans is not at present taxable. I accept the view of the Diamond Commission that there is no tax advantage from such loans where the interest on them would be eligible for tax relief. But where it would not be, I propose to make the benefit of these loans liable to tax. This will mean, for example, that house mortgages provided cheaply will not attract liability so long as they do not exceed the ceiling for tax relief; but loans made, say, for buying shares in a public company or for paying school fees will be taxable to the full extent of the benefit conferred by the remission of interest.

In addition to my proposals on cars and loans, I intend to strengthen the 1948 legislation on benefits in some other respects including its extension to employees in the public sector and non-trading organisations. My right hon. Friend will give details of these in the course of the debate.

I propose that all these changes in the treatment of fringe benefits should take effect from 1977–78—with the exception of certain anti-avoidance provisions which will take effect immediately—and that they should at the outset apply only to directors and employees earning over £5,000. But I am well aware that some of the benefits I have referred to are not confined to those on over £5,000 a year, and in due course, when staffing in the Inland Revenue permits, I intend that the provision of car and loan benefits at least should be taxable in the hands of all employees whatever their salary.

Administration of the tax system

I will now mention three minor tax measures, the first two of which will make very necessary savings in Revenue staff.

First, I propose to correct an anomaly which has caused a lot of unnecessary work. In the year in which a couple marry, the woman is at present entitled to the single person's allowance against her income before marriage and her husband

is entitled to the wife's earnings allowance against her post-marriage earnings. I propose to end this duplication of allowances in the year of marriage. This proposal should save 65 staff and yield £60 million.

Second, I have been looking at the arrangements for allowing tax relief for life assurance premiums. Because this relief differs from other tax allowances, it requires special attention in tax offices. The total work on giving the relief mainly through the PAYE system now occupies the equivalent of between 1,000 and 1,500 staff. To simplify the administration and save most of these staff I have decided that a system of relief by deduction should be introduced. This will allow policyholders to deduct an appropriate amount from each payment of an eligible premium; the Life Offices will then receive corresponding direct payments from the Revenue to reimburse them for the reduction in their premium receipts. It will require some changes in the form of the relief.

Both the Revenue and the Life Offices—who will of course be consulted on all the arrangements—will need some time to prepare for the new system. It will not therefore begin until 1979–80.

Third, I propose to raise the limits on the annual amounts which a self-employed person may pay by way of a tax-relieved premium to provide himself with an annuity on retirement. These amounts have not been changed since 1971 and the Government gave an undertaking last year that they would be reviewed. I have decided to increase the limit of £1,500 to £2,250, with corresponding increases in the limits for people born before 1916 and for the special forms of contract first introduced in 1971.

Capital transfer tax

The capital transfer tax was introduced in order to reduce the weight of inherited wealth and the unfair power which this gives to a minority of the population. This had been the main purpose of the estate duty. But the estate duty was avoided on a massive scale particularly by the very wealthy and this, of course, failed to bring about the redistribution of wealth which was its aim.

The lengthy and acrimonious debates which accompanied the introduction of


the capital transfer tax revealed how important these avoidance possibilities have been, since despite the fact that the new tax is levied at far more moderate rates than the old estate duty, it produced far more hostility among those whom it affected.

I believe that now the tax is on the statute book its fundamental fairness in comparison with the old estate duty is becoming more generally recognised and accepted. We have been anxious of course to meet legitimate grievances as well as to remedy technical defects in the legislation as far as possible, as we said we would do in the light of all that was said in the course of last year's debates. I have been particularly concerned to ensure that it does not damage productive activities which are of value to the national economy.

I will now mention only some of the more important changes.

The first, and most important, concerns the impact of the tax on businesses and farms.

I have decided to introduce a new relief for businesses which will go wider than the old estate duty relief for industrial buildings and plant and machinery. Where a transfer relates to a sole proprietor's or partnership business, or to a controlling unquoted shareholding in a company, the value transferred will be reduced by 30 per cent.

The new relief will apply to businesses generally, not restricted to the manufacturing sector; but investment concerns and dealers in land and shares will be excluded. This is a very important change, particularly for small businesses. It will substantially lighten the burden on transfer of businesses and will go a considerable way to meet the representations which have been made about the inhibiting effect of capital transfer tax on the small firms sector. I believe that it will give the proprietors of small businesses greater confidence to invest and expand their activities.

As a further help to the small business men, I propose to increase from £1,000 to £2,000 the annual amount which a person may give away in life tax-free after using up any other exemptions. This will produce a further lightening of the burden on lifetime gifts over and

above the existing concession of special lifetime rates. While the relief will be of general application, it will be particularly helpful to the small business man transferring his business over a period to his successors.

If we add to these changes in capital transfer tax what I have already said about the increase in profit levels for the small company rate of corporation tax, and about the provision of medium-term finance for industry, this Budget has gone a long way to meet the Government's undertaking to cater for the special needs of small businesses.

The new 30 per cent. relief will also apply to farmers. Here I have taken account of the work of the Interdepartmental Working Party on Capital Taxation and Agriculture, which was foreshadowed in the 1975 White Paper "Food from Our Own Resources". The 30 per cent. relief will apply to the assets, including land, which are used in farming as it does to other businesses. In respect of his land the full-time working farmer will still be able to claim instead his existing special relief. However, I am taking the opportunity to adapt the form of the present multiplier relief for full-time working farmers to that of the new business relief, that is, to a straight percentage reduction. In this special case the reduction will be 50 per cent., which will achieve broadly the same effect as the present multiplier relief. I am not proposing to reinstate relief for agricultural landlords, which was a justly criticised feature of estate duty.

The new relief, which will cost an estimated £15 million in the first full year, will apply to all qualifying transfers after today.

The present exemption on death for works of art, historic houses and other property of importance to the national heritage will, subject to certain conditions, be extended to lifetime gifts and to property held in discretionary trusts, but at the same time I propose to toughen the conditions for the relief.

I shall be introducing new provisions to govern the treatment of property passing under survivorship clauses in wills; and to stop from today what the Press has labelled "The General Franco device". [HON. MEMBERS: "What is


that?"] There seems to be some uncertainty as to what that is, so let me hasten to add that it is a device which makes it possible to escape the capital distribution charge on money paid out of discretionary trusts. The trustees simply make the distribution conditional on the beneficiary surviving some named person, usually someone who is close to death.

Capital gains tax

In my Budget Statement last year I said that I was not persuaded that it would be right to introduce indexation for capital gains tax but that I proposed to review the incidence of the tax in the ensuing year.

The issue is whether I should alter capitan gains tax to take account of the fact that someone who sells a chargeable asset has to pay tax on a gain measured in money terms although inflation may have reduced the real gain or indeed even turned it into a loss. Different suggestions have been put forward for dealing with this problem. Some people propose that the cost of the asset should be written up on an index; others that the gain should be scaled down according to how long the asset has been owned. It has even been suggested that, because of inflation, capital gains tax should be abolished altogether.

The crucial question is whether those people with chargeable assets should have their tax liabilities insulated from the effect of inflation. I have come to the conclusion that this would not be right. For income tax, although I have increased the personal allowances during my two years as Chancellor, I have not been able to do so sufficiently to eliminate fiscal drag completely. Income tax liabilities have not, therefore, been insulated from inflation.

Then there are the millions of investors who have no prospect of any capital gains on their assets—those who put their money into building societies, savings banks and the like. If assets such as shares and land are to be indexed for capital gains tax, logic requires that these millions of other investors should be treated as having incurred losses on their assets. We just cannot afford to go down this road.

I have, therefore, concluded that there should be no change in the structure of capital gains tax. The right answer to inflation is not to tinker with the effects but to cure the disease, and this we are doing.

However, I propose to increase, with effect from 1975–76, the total amount of disposals that can be made annually without any charge to capital gains tax from £500 to £1,000. This will mean that those with modest amounts of capital—£500 to £1,000—are unlikely to become chargeable to capital gains tax, so that they at least will be protected from the effects of inflation. This change will cost about £750,000 in a full year.

Exchange losses

Finally, I should mention that I have received many representations that the extra cost to companies of repaying foreign currency loans when sterling has fallen in value should rank for tax relief. This is a complex matter on which the arguments are finely balanced. I will announce my decision on this in next year's Budget. Meanwhile the Inland Revenue will consult those affected to see whether a scheme for tax relief can be devised which is workable, fair to taxpayers and the Exchequer and reasonably free from risk of avoidance. I should make it clear that these discussions will be entirely without commitment on my part.

PUBLIC EXPENDITURE

Before turning to certain improvements in social security, I must say a word about public expenditure in general. I have referred already to the need to get a better balance in the economy and to improve the distribution of resources over the rest of the decade. In order to ensure that the necessary resources are available for these objectives—for exports and investment and for the take-home pay of working people—we must limit the demands made on resources by the public services over the coming years.

Our plans for doing this were set out in the Public Expenditure White Paper. Over the medium term we aim to stabilise the volume of public expenditure at about the level reached in this financial


year. This has meant some painful decisions, but we have kept to our main priorities. Within the totals there will be some room for revisions of priorities, but in the main what we badly need now is a period of stability in our planning.

We have set ourselves against short-term cuts in spending in the current year since these would be disruptive and add to unemployment. But we are determined to ensure that our expenditure in the current year does not exceed the limits we have set. We are developing improved methods of monitoring expenditure and we are making extensive use of cash limits. Expenditure from Votes is now reported promptly after the end of each month in substantial detail. For cash-limited expenditure it will be compared with profiles of expected expenditure. This will provide early warning of any significant discrepancy. The arrangements for cash limits, and information about the specific cash limits for 1976–77, are set out in a White Paper which is being made available to the House today.

I have mentioned certain new measures of financial assistance forming part of our industrial strategy. Their cost will be met within the planned White Paper total for public expenditure. I now come to some measures of high social priority; provision for these, too, will be found within the White Paper totals for 1976–77 and subsequent years.

Pensions uprating

As we made clear last year, we propose to return to the annual cycle of upratings now that inflation is being brought under control. We shall therefore raise social security benefits in November. We also confirmed in the recent White Paper on Public Expenditure our continuing commitment to improve pensions and other long-term benefits in line with the movement of earnings.

Now that the rate of inflation is coming down, I believe that an increase of £3 in the rate of pension for a married couple would be more than enough to match the actual and likely movement in earnings in the 12 months to November; an uprating on this basis would require additional provision of around £360 million in the current financial year.

But I have listened carefully to representations from those who have urged me to go beyond this. In the light of these representations I have decided to raise the married rate by £3·30 to £24·50. For single pensioners the increase will be £2 above the present rate, giving a new rate of £15·30 a week. These increases of over 15 per cent. will cost about £400 million in 1976–77 and about £1,070 million in a full year.

There will also be increases in short-term benefits which my right hon. Friend the Secretary of State for Social Services will be announcing tomorrow. Altogether the increases in long-term and short-term benefits will provide an additional sum of around £510 million in 1976–77 and over £1,360 million in a full year.

Family Income Supplement

As regards support for families, we shall also make a substantial increase in July in the limits up to which families can claim family income supplement. The limits for a one-child family will go up by £7·50 a week—from £31·50 to £39. They will be £4·50 higher for each subsequent child. The maximum supplement payable to a one-child family will be increased from £7 to £8·50 a week. This will ensure that families which have received a £6 pay rise under the present policy will have their FIS entitlements fully protected. It will also bring about 25,000 more families into benefit, taking the total to about 85,000. The cost of the increase will be £12 million 1976–77 and £14 million in a full year.

My right hon. Friend the Secretary of State for Social Services will announce details of these various changes tomorrow.

INCOMES POLICY AND DIRECT TAXES

I now turn to my proposals for carrying forward our attack on inflation and for encouraging the greatest possible reduction in the growth of wage costs. I hope to achieve this through relating tax concessions to a lower limit on earnings during the next pay round.

The experience of the past 12 months has brought it home to all sections of the community that inflation is the great enemy of full employment. For a country in Britain's present economic situation,


the number of people who have a job will depend directly on the level of pay received by those in work.

I think we have all seen reports of people who have actually accepted lower wages so as to save jobs. The relationship between jobs and wages is seen at its starkest in some of the nationalised industries, such as the Post Office and the railways, where the price increases generated by higher wage costs are already risking the driving away of custom and putting jobs at risk.

The nation as a whole has to draw a similar lesson from the experience of the past few years. As I have already argued, unless we can improve our ability to compete on price, the balance of payments will set a limit on the speed at which we can return to full employment. Moreover, we shall be unable to finance our external deficit in the period before we achieve a surplus on our current account unless we succeed in getting our rate of inflation down. If wages had continued to rise at the rate they were rising last summer, the collapse of foreign confidence in Britain would have brought the collapse of our economy.

The agreement with the unions saved the situation. The £6 pay limit which emerged from the crisis in July last year has not cured unemployment in Britain. But it has ensured that hundreds of thousands of men and women are now in work who would otherwise have lost their jobs in the inevitable collapse of confidence at home and abroad and the deflationary measures which would have had to follow it.

Excessive pay increases are not only bound to increase unemployment. They are self-defeating even for those who manage to keep their jobs, since they cause rising prices which swallow up most of their value within six to 12 months and nearly all of it in one or two years. Yesterday's figures show with startling clarity that over last year as a whole although pay rose by a record 29 per cent., living standards did not rise at all. In addition, the inflation such pay increases generate reduces the international value of our currency, thus adding further fuel to inflation.

There is no end to this vicious circle except to get inflation down at least to the level of our international competitors. That is why the fight against inflation must remain our first priority. Winning the battle against rising prices is the first condition for our return to full employment. If our industries cannot finance their operations, cannot invest, cannot compete at home or abroad, if we cannot finance our overseas deficit, jobs are at risk on a massive scale.

The progress we can expect to make this year in the fight against inflation depends above all on the pay limit devised last summer by the trade union movement itself in full knowledge and acceptance of the nation's economic needs. We need a similar voluntary policy for incomes when the £6 limit expires at the end of July. Let me stress at the outset that what I am seeking is a voluntary policy—that is, a policy which the General Council of the TUC and the Congress agree willingly to recommend to their members as something good for themselves and good for the country.

The Government's overriding purpose is to reach a fresh agreement with the trade unions on a voluntary policy for the next pay round—an agreement which will help to bring the rate of inflation down still further in the coming year. In its Economic Review for 1976, the TUC has suggested a target which the Government fully endorse. It is to reduce the rate of inflation next year to a figure well below 10 per cent. The TUC stresses that this target cannot be achieved by a policy for incomes alone. The Government agree. A major contribution must also be made through policies for prices, taxation and public finance. But, in my view, the key to achieving a rate of inflation which is well below 10 per cent. by the end of 1977 is to relate our tax policy in the coming year to the next policy for incomes.

I am prepared to use my powers as Chancellor of the Exchequer to help the TUC to get the next pay limit as low as possible by reducing the amount of income tax which is taken from the pay packet. I intend to guarantee that the working population as a whole does not suffer by accepting a lower pay limit rather than a higher one; indeed, I would ensure that a lower pay limit leaves those


who need help—families with children—a good deal better off than a higher pay limit. I shall explain how this will be achieved.

It is clear that the next pay limit will need to be well below this year's limit of £6 a week. If the limit were only a little less than the present £6—say £5—it would produce little, if any, further reduction in the rate of inflation by the end of 1977. Our objective must be more ambitious. The £6 limit should have helped to cut our inflation rate by well over half by the end of this year compared with December 1975. If we want to end next year with an inflation rate at least in line with our foreign competitors we must aim at a further halving of our inflation rate by December 1977. Since we are likely to face higher import prices, partly because our earlier inflation has caused our exchange rates to depreciate, this would require that in the next pay round the nation's money wage bill should rise by under half as much as it is likely to rise in this pay round.

It will, of course, be for the TUC to judge the size of the pay increases to which it can secure the agreement of its members. I emphasise again that I am not seeking to dictate or impose a particular figure. But I do want to prove that the majority of working families would gain by agreeing to a lower limit rather than a higher one.

The proposals for income tax reliefs which I shall now set out show how this result could be achieved. Part of the reliefs would have to be conditional on a low pay limit, and I must state clearly the level on which these particular reliefs would depend, because the House will want to know on what assumption it would be asked to approve them and the trade unions will want to know what tax benefits would flow from a particular limit.

But, as I said before, my overriding purpose is to get a fresh agreement with the TUC on pay which will at least guarantee further progress in the fight against inflation. If in the end the TUC found that it was unable to agree to a figure as low as that on which these tax reliefs are based, I would, of course, have to reduce the amount of the reliefs accordingly. If, on the other hand, it could go lower still, I would more than compensate with still

greater tax reliefs and the nation as a whole would benefit still more.

I have based the tax reliefs which I shall now describe on the assumption that the pay limit in the next wage round will be in the area of 3 per cent. I cannot be absolutely precise because much will depend on the way in which the new policy is structured—for example, whether it is a flat sum or a percentage, or a mixture of the two. A limit of 3 per cent. is the basis of my proposals because I do not believe that in the circumstances of the coming year a higher limit could be relied on to bring down our rate of inflation to that of our principal competitors.

My proposals are in two parts. The first part will take effect at once, and I commend it to the House unconditionally. It is intended primarily to help sections of the population, like the old and children, who will not be involved in the coming negotiations on incomes policy. The second part, as I have just explained, must be conditional upon agreeing—I hope at the latest by early June—a pay limit which is consistent with a further halving of our inflation rate in the coming year.

First, I wish to deal with the unconditional set of income tax reliefs. Besides the increase in pensions I have announced, I propose to increase the age allowance for single people by £60 to £1,010 and for married people by £130 to £1,555 and also to raise the ceiling for the allowance by £250 to £3,250. These increased allowances will be substantially above the rates of retirement pension which will be payable after the uprating in November and this will enable old people to continue to supplement their pension without paying tax.

Next, I turn to the situation as it will affect children. For a number of reasons, the real incomes of families with dependent children have fallen behind in the last few years, relative to those of the majority of single people. Since 1972 policy on low pay and equal pay has tended to help single people more than married people and married people with children least of all.

Although last year I made the first increase in family allowances since 1968, the child tax allowances have not been


increased since 1974. As a result families with children have been bearing a disproportionately high part of the total tax burden.

I propose, therefore, to increase child tax allowances by £60 so that they will become £300 for children under 11, £335 for children between 11 and 16 and £365 for children over 16. This improvement will cost £300 million in a full year. I must regard it as part of the compensation for accepting a low pay limit which I am offering to the TUC. Nevertheless, in the confidence that we shall in fact achieve a low limit, I propose to include it in the first part of the package and to give effect to it immediately. Like the increase in the allowances for the elderly, it will be implemented through PAYE as soon as the Inland Revenue can make the necessary changes.

I now turn to the second part of the income tax package which must be conditional on our achieving the low pay limit. I propose to improve the personal allowances for single and married people and, as part of my policy to give as much relief as possible to families, I propose to give a greater increase this year to the married than to single persons. Among the married for this purpose I include single parents because, as I made plain last year, I intend to raise the additional personal allowance so that the allowance for one-parent families is kept in line with that for two-parent families.

I propose, therefore, once the low pay limit is agreed, to increase the single person's allowance and the allowance for wives' earnings by £60 to £735, the married persons' allowance by £130 to £1,085 and the additional personal allowance by £70 to £350. These increases in allowances, if the pay limit enabled me to implement them, would keep 670,000 out of tax altogether and would help to reduce the administrative cost of collecting taxes.

The single allowance is given to widows as well as to single women pensioners under the age of 65 and, if I am able to increase it as I hope, it will be sufficient to cover the standard rate of national insurance pension payable in 1976–77. If not, when these women have only the standard pension and no other income, they will still be kept out of tax

liability. This is because the Inland Revenue does not in these cases assess small amounts of tax, and to save administrative costs it is now proposing to increase the limit of this assessing tolerance from £10 to £30. The new limit will be sufficient to cover the difference between the standard pension and the single allowance.

This will mean in practice that, even if I am unable to make the proposed increase in the single allowance, assessments will not be made on this class of pensioners if they have no other income. So these widows and single women pensioners under the age of 65 with no other income will have their tax anxieties relieved. I believe that the whole House will welcome this decision.

I come finally to the higher rate tax structure. The threshold for higher rate tax has been eroded by inflation so that it now lies between one-and-a-half times and twice average earnings. Unless I adjust it this year, the numbers subject to higher rate tax will rise from 1·3 million in 1975–76 to 1·9 million in 1976–77, including very large numbers of skilled workers. This would impose a very heavy new administrative burden on the Inland Revenue.

As I made clear earlier in my speech, I believe that it is desirable in any case to reduce the extent to which fringe benefits are used as a substitute for pay increases at the higher levels. We have far more of these fringe benefits in Britain that other comparable countries. I have already described how I propose to limit the value of fringe benefits through action on business cars, cheap loans and so on. Nevertheless, the counterpart of action on fringe benefits must be some reduction in the income tax burden, particularly on middle managers in industry who have seen their net pay severely reduced in real terms over recent years by inflation and the incomes policy of successive Governments. The Diamond Report on higher incomes gives compelling evidence of this. I believe that middle management must play a key rôle in our industrial and economic recovery.

Taking all this into account, I have decided that the second, conditional, stage of the income tax package should also include an increase of £500 in the higher rate threshold and a similar increase of


£500 in the next four thresholds up to a taxable income of £8,500 a year. The starting point for the higher rate at 40 per cent. would therefore be £5,000 instead of £4,500 and so on; but the 65 per cent. rate would continue to start, as now, at £10,000. This would wall a long way short of restoring the real value of these five higher rate thresholds to what it was two years ago, but it is the most I now feel able to propose.

The total cost of these income tax reliefs, if both stages are fully implemented, would be about £1,300 million in a full year. Of this, £370 million is included unconditionally in the first part and the balance will be held over to the second part, since it is conditional on the low pay limit. The revenue from the increased duties on alcoholic drink, tobacco and petrol will broadly cover the cost of the unconditional £370 million which is concentrated on the old and children. I believe that the House will feel that this reflects the right social priorities.

These tax reliefs are designed to ensure that if we add together families with and without children and single people, the majority would actually be better off with the low pay limit than with a higher limit but with none of the tax reliefs. At average earnings families with children will be substantially better off though the single man or woman will be a little worse off, since the use of the tax system enables us to pay regard to social need.

Moreover, poor wage earners who pay tax will benefit proportionately more because they get the same cash increase in their net incomes as other taxpayers on the basic rate. The low paid with means-tested benefits will do particularly well from the low pay limit with tax relief, since tax relief, unlike increases in gross pay, does not affect their entitlement to most of the means-tested benefits.

The reason why most people would be better off with the lower pay limit is that the real value of their pay would be increased not only by the tax reliefs but also by the fact that prices would be lower as a result of the lower pay limit. The contrast is seen most clearly if we compare the low pay limit with one which was, say, £3 higher or about 7½ per cent. instead of 3 per cent. By comparison with the inflation generated by the higher limit, the low pay limit would make infla-

tion 2 per cent. lower at the end of 1977. This 2 per cent. cut in the level of prices will be worth as much to the man on average pay as a pay rise of about £2 a week—a bit less for the single man, a bit more for the married man with children.

The income tax reliefs I have described would add substantially to that advantage, particularly since there is, of course, no tax to pay on them, whereas the extra £3 of earnings would be taxable. So on top of the £2 gain through lower prices, the tax reliefs would be worth as much to the man on average pay as a pay rise of 68p a week to the single man, £1·48 a week if he were married and £2·84 a week to a couple or a single parent with two children—and even more to bigger families. The married taxpayers would thus be getting advantages worth well over the £3 difference in the pay limit.

Let me put it another way. If one takes into account both the tax reliefs and the lower price increases which would follow, the 3 per cent. pay limit for the person on average earnings would be equivalent to 6½ per cent. or about £4·50 a week for a single person, 8½ per cent. or about £5·40 a week if he were married, and 10½ per cent. or about £7 a week for a couple or a single parent with two children. These figures would compare with 7½ per cent. or £5 for all average wage earners, whatever their family circumstances, under the higher limit which I have taken for purposes of comparison. For larger families the proportionate advantage of the low pay limit would be even greater.

In case, as I suspect, the House may find it somewhat difficult to follow these calculations when they are heard for the first time, some tables to illustrate the points which I have made are available in the Vote Office.

The advantage of the low pay limit with tax relief does not stop here, because the tax relief would be backdated to today, whereas the great majority of workers would not get their normal pay increase in the next pay round until next year at least nine months later—in other words, the benefit in income tax would come long before the low pay limit affected them.

I recognise that the demand effect of the low pay limit with tax relief would


for this reason be somewhat greater than the demand effect of the higher pay limit without tax relief. But the difference between the two should not be sufficient to change more than marginally the pattern of demand and the growth rate over the next 12 months, which I outlined earlier as likely to emerge on the basis of what might be called a "no change" Budget. The small increase in aggregate demand and in particular the small stimulus to consumption, would in my view be entirely justified by the better performance which our industry would be able to look forward to both at home and abroad if we could get the lower inflation rates which the low pay limit would lead to.

As I have already described, in addition to the direct advantage in real take-home pay produced by the lower pay limit, it would also generate more jobs by improving the ability of our industry to compete by stimulating investment and by improving confidence in Britain both at home and abroad. The advantage would be particularly great for those firms and industries which I have already mentioned, where further increases in wage costs risk pricing their products out of the market and their work people out of their jobs.

I hope that the advantages of this approach will commend it to trade unionists. I am asking the TUC to reach a conclusion in the General Council on the level of the pay limit for the next round by early June at the latest. On that basis, the House will have a further opportunity to debate the second group of income tax reliefs in conjunction with a White Paper about the pay agreement in the later days of June or the early days of July. I would then move amendments to the Finance Bill at the appropriates stage so as to seek Parliament's authority for the second group of reliefs, either in whole or in part depending on the pay limit which is agreed.

I know that this procedure is unusual. Indeed I believe it has no precedent. But the situation in which we find ourselves has no precedent, either. And I think that the House will agree that the assumption which I must make about the rate of inflation in this coming year is of critical importance to my Budget judgment. It is of even greater importance to the prospect for improving the

nation's economic performance as a whole. I therefore make no apology for presenting the nation with the facts of the situation as I see it and enabling trade unionists who must reach a decision on the new pay limit to do so in full knowledge of all the advantages of making it as low as possible.

CONCLUSION

These then are my proposals. This is an almost neutral Budget. I have said all along that we cannot base expansion on a general reflation of domestic demand. The unconditional part of my Budget is neutral both in financial and demand terms and it does not reduce the overall burden of taxation, although I believe that it distributes that burden more fairly. If we can achieve the low pay limit, the effects this would have on confidence would enable me to implement the additional tax reliefs, which would go a little beyond what is necessary to offset the temporary demand effects of such a limit. The net effect might be to increase output in the first half of next year by about £400 million or about one-third of 1 per cent.

In that case, I see the economy developing as follows between now and the middle of 1977. I expect the recovery to gather speed. Gross domestic product, which fell during 1975, should grow by about 4 per cent., and manufacturing output by about 8 per cent., in the year to mid-1977. The increase in demand will come largely from exports and stock-building: little will come from consumption. This is a pattern of growth which we should be able to sustain and to improve on later if we can reduce bottlenecks and achieve a better trade performance.

Given the prospect of rising output and the evidence of a revival in business confidence, investment is likely to start rising again this year. The increase in manufacturing investment between the first half of this year and the first half of 1977 could be of the order of 15 per cent., although private fixed investment as a whole is likely to grow about half as fast.

Since the forecast growth of GDP is above the trend growth of productive potential, we shall begin to take up


slack in the economy. As I explained earlier, it is too soon to say whether we have already reached the peak of unemployment. On past experience we should have to expect a substantial lag between changes in output and changes in employment: this is why most forecasts suggest that the turning point may still be some months off. On the other hand, it is difficult to reconcile those forecasts with the recent monthly figures, not only of unemployment but of vacancies, short-time working, overtime and temporarily stopped.

These are encouraging signs but it would be foolish to be complacent. That is why I have introduced additional measures which are specifically designed to protect employment. Given the low pay limit, I estimate that the additional tax relief, together with the temporary employment subsidy, will provide in the next 18 months about 100,000 more jobs than would be available without them.

On the balance of payments, I believe that despite the upturn in economic activity we shall hold on to the improvement in the current balance which we achieved in 1975.

On prices, I believe that we can still achieve our target of under 10 per cent. next winter. The prospect for 1977 depends crucially on achieving the low pay limit. We have already halved our rate of inflation and if we can achieve the low pay limit for the next round we can halve it again by the end of 1977.

The forecast for the PSBR for 1976–77 is £12 billion. This represents a lower percentage of GNP than in 1975–76. The forecast would be about £700 million lower without the conditional tax reliefs but, as I said earlier, I believe it is well worth accepting some increase in the PSBR in order to achieve a lower rate of inflation.

Within the severe constraints imposed by our economic circumstances I have tried to ensure that such help as can be provided should go to those, such as pensioners and families with children, who need it most. My proposals are also designed to ensure that the majority of working people will be better off with a low pay limit than without it.

As I said at the beginning of my speech, this is likely to prove the most

critical Budget of the present Parliament. It aims at creating the conditions in which Britain can achieve that improvement in her industrial performance which is essential if we are to return to full employment as fast as possible. That is why the measures which I propose relate primarily to the necessary increase in our industrial efficiency and the necessary reduction in our industrial costs.

But there are severe limits to what any British Government can do by budgetary measures to meet the objectives I have set. The main responsibility must fall in this, as in all else, on the British people as a whole, and in particular on those who work in industry. I have set out the problems which we must overcome if we are to reach our goal. I have explained how we can overcome them. I believe the British people have proved over the last 12 months that they are capable of facing the facts. All that is required to achieve the formidable objectives which I have set is a marginal improvement in our industrial performance at every level. This will suffice to produce the economic miracle we need. I believe that the Budget creates the conditions in which this improvement will be possible. On those grounds I ask the House to support it.

Mr. Deputy Speaker: Under Standing Orders the first motion, entitled "Provisional Collection of Taxes", must be decided without debate. When that matter has been disposed of, I shall call the Chancellor formally to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on the succeeding days. The remaining motions will not be put until the end of the debate on Monday.

PROVISIONAL COLLECTION OF TAXES

Motion made, and Question,
That pursuant to section 5 of the Provisional Collection of Taxes Act 1968 provisional statutory effect shall be given to the following Motions—

(a) spirits (Motion No. 2)
(b) beer (Motion No. 3)
(c) wine (Motion No. 4)
(d) made-wine (Motion No. 5)
(e) hydrocarbon oil etc. (Motion No. 6)


(f) tobacco products (Motion No. 8)
(g) value added tax (reduction of higher rate) (Motion No. 10)
(h) Vehicles excise duty (disabled persons) (Motion No. 13).—[Mr. Healey.]

put forthwith, pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

Mr. Nigel Lawson: On a point of order, Mr. Deputy Speaker. Can you tell the House whether the Provisional Collection of Taxes Act will apply to what the Chancellor has called provisional taxes and, if so, under what authority?

Mr. Deputy Speaker: That is not a point of order.

BUDGET RESOLUTIONS AND ECONOMIC SITUATION

AMENDMENT OF THE LAW

Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but, without prejudice to any authorisation by virtue of any resolution relating to value added tax, this Resolution does not extend to the making of amendments with respect to that tax so as to provide—

(a) for zero-rating or exempting any supply;
(b) for refunding any amount of tax;
(c) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or
(d) for any relief other than relief applicable to goods of whatever description or services of whatever description.—[Mr. Healey.]

[Commission Documents Nos. R/622/76 and R1606176 on Policy Guidelines for 1976.]

5.46 p.m.

Mrs. Margaret Thatcher: It is the custom and the pleasure of the Leader of the Opposition to congratulate the Chancellor on the manner of delivery of his Budget Statement. This year it has been quite a marathon—for us, but particularly a marathon for him. He has to use his voice more in one speech than most actors would have to use theirs during a whole week, and he has to write his own script. He will understand that if the compliments do not always apply

to the script, they apply to the way in which it was delivered. There have been Budget speeches which took as long as five hours to deliver. Gladstone took five hours and so did Lloyd George; but they knocked off in the middle, doubtless to increase the revenue by what they drank in the process.
The Chancellor has put a great deal into this Budget Statement and we naturally wish to reserve judgment on many aspects until tomorrow. I think that we may make a number of preliminary comments, however. First, he did not quite seem to understand that the world has passed judgment upon his record in the last year. When he rose to open his Budget last year the value of the pound was $2·37. When he rose to open it this year the value was down to $1·87, a fall of very nearly 1 cent per week. That is the best barometer of the world's confidence in the right hon. Gentleman's stewardship.
It is quite wrong, when the right hon. Gentleman says that confidence in our future has been transformed, for him to imply that it has been transformed upwards. It seems very much to have been transformed downwards. In many ways our problems seem far worse than they were two years ago. He tucked away at the back of the speech that the very important and significant figure of PSBR for next year would be some £12 billion. Of course, we have great difficulty in judging that figure because the right hon. Gentleman has always got it wrong—and always in the same direction. His forecasts have always been below the outturn. This last year he wanted to hold it down to £9 billion but it rose to over £10 billion.
This is really the key to our future, and the size of the deficit dominates everything the Chancellor can do. It also dominates any tax reliefs he can make, because until he reduces the underlying rate of expenditure he cannot do very much more than shuffle the taxes around from one taxpayer to another and one set of goods to another—and he has done a lot of shuffling in this Budget.
As to the lower amount of the public sector deficit, it is not by any means all due to the recession. If it were, it would be different. We now know from the many forecasts and the many analyses which have been made that only a very


small part of that deficit is due to the recession. The bigger part is due to the underlying structural problem, that we are living beyond our means.
We should be living beyond our means even if we had full employment, even if we had the extra tax yield that that would bring, and even if we had North Sea oil. That deficit amounts to something like £6,000 million to £7,000 million, and the Chancellor has made no effort at all to deal with it.
The Chancellor has said that other things are improving. Yes, they are, but he is treating the economy as though it were a patient with two diseases, the first being influenza, which we could say is similar to the recession we are experiencing, and the other being cancer, which is equal to the underlying and growing deficit. He is saying, in effect, that when the patient is recovering from influenza, or looking a little better, we can ignore the cancer and not do anything about the structural growth, which will go on destroying the patient unless we destroy it. He has left that untouched.
Last night the new Prime Minister said that there were no longer any soft options, but the Chancellor has taken the soft options. He always does. He always defers the difficult decisions. He used to defer them until next year. These days he defers them not until next year but until the year after. Until he starts to deal with them we shall find that our overseas customers and overseas investors will continue to put the value on sterling which they have been putting on it recently.
The Chancellor has a new system for the relation between taxation and pay rises. It is extremely complicated, and we must, of course, reserve judgment upon it. But may I give one instinctive democratic reaction? He is turning over the decision about the taxation levels of the majority of our people to a body which consists of the minority of our people. That seems to me to be taxation without representation. It seems to me to be thoroughly discarding or disregarding the interests of the majority.
We should look at this extremely carefully, because we are the body which represents all the interests of all our people. I do not believe that the Chancellor

can abdicate his responsibilities to any other body in that way.
We shall have to study the details, but it looks as if the Chancellor's proposals will compress differentials still further. My understanding of some of the recent strikes at British Leyland is that people are rebelling against the flat-rate Socialist society. They believe that if they have more skill or carry more responsibility, they ought to have higher pay—and in particular higher net take-home pay at the end of the day. We have always believed that it is wrong to depress differentials, because in the end, as we come out of the next phase, this policy will only leave more and bigger problems for the Chancellor's successor—and we have a vested interest in that.
Because of the enormous size of the deficit, because of the enormous amount of borrowing which the Chancellor is putting round the necks of future generations—it is the young who will have to repay, and never have they had to repay so much—he cannot do very much about taxation. Some of the changes he has made will not nearly compensate for the effect of inflation. Indeed, some of us were a little surprised that the child tax allowances he announced were not a little higher.
I had thought, from what the Chancellor said earlier, that he would do more to help middle management. He has, in fact, done comparatively little. Middle management is, after all, a group upon which we depend in getting our economy moving again. We need middle management in endeavouring to make the industrial recovery which we accept, as does the Chancellor, to be the key to the recovery of economic prosperity.
I looked with the greatest possible interest on the Chancellor's privileges for those who buy pipe tobacco. Now that he has also reduced the VAT on boats from 25 per cent. to 12½ per cent., it really looks like an ex-Prime Minister's benefit Budget.
It would seem that the Chancellor is making a very good thing out of all the vices. Indeed, this year he has even found a way of putting a tax on apples, albeit through cider.
We welcome, of course, the continuation of stock appreciation relief. I believe the Chancellor did it in the wrong way


to start with. We moved amendments which would have extinguished the liability at the beginning, and because he did not accept them, he is in very considerable difficulty now.
We welcome very much the changes that the Chancellor is proposing in relation to capital transfer tax to help the small business man and the farmer. We also welcome the Chancellor's downward change in value added tax from 25 per cent. It would have been very much better had he accepted the logic of his own argument and taken it to a simple 10 per cent., which, on his own yardstick, would be easy to calculate and would also, I believe, have produced quite a good deal of income.
It seems absurd to have a rate of 8 per cent. and a higher rate of 12½ per cent. If the Chancellor is arguing that the industrialist needs stability, so does the small shopkeeper. He also needs simplicity of administration, because he has to endure a great deal of administrative expense in calculating and collecting VAT for the Chancellor.
We also welcome very much the increase of the limit for pension annuities on behalf of the self-employed.
I had thought that we might be able to call this a honeymoon Budget, but, in view of what the Chancellor is doing about personal reliefs on marriage, we can hardly say that it is the best wedding present for a honeymoon couple.
As to the social security changes that the Chancellor is proposing, we are now accustomed to having social security announcements in the Budget. But we are finding difficulties which have not occurred in previous years. Some of these difficulties have, I believe, been highlighted by the assiduous work of my hon. Friend the Member for Norfolk, North (Mr. Howell), who has been making a study of the relationship between the taxation and social security benefits of those in work compared with those who are out of work.
We shall enter a period of difficulty if we are to have social security benefits indexed for inflation and the underlying wages not indexed for inflation. We shall have a position in which some of the social security benefits may

go up—we do not know about the short-term ones yet—by as much as 12 to 15 per cent., whereas the pay of the employed man may go up by only 3 per cent. This means that the unemployed man with a wife and two children could have a very much higher income in his pocket than the man next door who is in employment. This could and will cause very considerable resentment. It does not make sense to leave it as it is. It is a problem that we shall have to tackle. There is also burning resentment about the higher rates of tax which seem now to take effect at such low levels. Again, the key to all of that is to deal with the deficit, and the key to dealing with the deficit is to deal with the underlying level of public expenditure and its proportion of national income.
I have never seen any Chief Secretary demolished so effectively as the present Chief Secretary was by the Fourth Report of the Expenditure Committee. His case was totally demolished. He was putting forward, as the Chancellor has, euphoric forecasts. The Committee agreed that we should not in future be bound by the past. In skilful cross-examination, he was asked what he had done to make him believe that the future would be different. But answer came there none. In fact the Chancellor has repeated some of the forecasts which the Committee condemned as economic miracles.
The Chancellor is not in the world of realism with public expenditure. Because of the rate of inflation, he will have to look at his expenditure commitments alongside his revenue commitments. That is the only way he can judge them. That was perhaps not so necessary when the level of inflation was low, but it is now necessary when the level of inflation is too great for that system to continue.

Mr. Frank Allaun: What would the right hon. Lady have done?

Mrs. Thatcher: That is the wrong approach. Most of us have to gear our expenditure to our income. However desirable things are individually, if they add up to a total which one cannot afford and which jeopardises one's future, as this permanent deficit does—and one cannot go on borrowing for ever—one has to look at one's priorities. I had to look at priorities in education and,


£20,000 million of expenditure later, none of the cuts which I made has been restored. It does not make economic sense to go at it the other way.
The Chancellor of the Exchequer has no more discovered the secret of perpetual borrowing than scientists have discovered the secret of perpetual motion. The problem has to be faced and sorted out, otherwise we shall build in the next round of inflation—which could be even worse—together with an even higher level of unemployment.
Most of us want neither inflation nor unemployment but the sort of economy that can be properly handled with jobs which are genuine because those concerned are producing goods. The Chancellor gave us a nice little lecture about that in the middle of his Statement. It was enjoyable.
The Budget gives away money that the Chancellor has not yet even borrowed. It is a big-borrower's Budget from a soft-options Chancellor. After what the Prime Minister said last night about no soft options in the future, I hope that we shall see a Government who trust the people and who tell them the truth, and who stand some chance of halting the slide towards national bankruptcy.

6.4 p.m.

Mr. Roy Hughes: The Leader of the Opposition made a controversial speech. [Interruption.]

Mr. Speaker: Order. The hon. Gentleman is trying to address the House. If hon. Members who wish to leave the Chamber will do so quietly, it will be a great help.

Mr. Hughes: In his long speech the Chancellor of the Exchequer dealt with a multitude of issues and tried to provide at least some of the answers to the problems which affect the country. I found him difficult to follow when he was dealing with negotiations with the trade unions. Perhaps I am not alone in that.
I thought that his figures were a little hypothetical. In the early part of his speech my right hon. Friend mentioned the twin evils of inflation and unemployment, which he said were essentially international in character. I shall deal with what I consider to be a distinctly British problem.
It would be repetitive to say that our economy is in a powerless state. We are suffering from inflation, and about 1,250,000 people are unemployed. There are severe restrictions on collective bargaining. I agree that they have been imposed through the voluntary co-operation of the trade union movement, but I was taught that free collective bargaining is an essential part of a free society. I have no wish to rock the boat today, particularly as the new Prime Minister has just come into office. I wish him well in his formidable task. The Government are making strenuous efforts to solve our difficulties.
The situation would be even worse if the Conservative Party were in power. It would not easily get the co-operation of the trade union movement and it would base its policy on even higher unemployment.
When, 20 years ago, I was being taught the rudiments of economics I was told how Britain earned her living as a nation. I was told that we imported 50 per cent. of our food supplies, plus raw materials to service our manufacturing industry, and that we in turn exported manufactured goods. I was told that those earnings were supplemented by those from shipping and from financial facilities such as insurance. That theory is now old hat. Food and raw materials account for only about 50 per cent. of our total imports, and the British market is being flooded with all types of foreign imports such as cars, washing machines, steel, television tubes, textiles and so on. A large deputation of shop stewards from the large Hoover factory at Merthyr Tydfil recently pointed out to hon. Members that the Italians were dumping washing machines in this country.
The Government are proposing assistance to the paper and board industry so that it can re-equip. Representatives of a firm in my constituency have said that they are afraid that the recipients of this public money would buy new machinery from overseas. That would be ridiculous, because we can produce the equipment in this country. There are many more examples of home production, and I have firmly come to the conclusion that we now need severe import restrictions. I agree that there is a danger of retaliation,


but many countries are already practising all manner of restrictions.
I shall be told that import controls have nothing to do with Socialism. However, they are necessary to put the British economy back on its feet. There is also the case that import controls would be detrimental to the developing countries, but we must face the fact that charity begins at home, and a strong Britain would be better able to help those developing countries. Dogma in this respect must be put on one side to get our people out of the dole queue.
I appreciate that the principal obstacle to the imposition of severe import controls is our international commitments, whether through the Common Market of GATT or to the International Monetary Fund, but what justification can there be for allowing Britain to be flooded with imported goods that we can easily produce? We seem to be the softest touch of all in international markets. Our manufacturing industry is being eroded, and the result is heavy unemployment. It is as if it is no longer nice to put the case for essential British interests. Yet we must have a firm policy of import restrictions so that we import only what we can pay for with our exports. The economy is suffering from a lack of effective demand. If it could go flat out without the fear of balance of payments crisis, then employment, investment and production would rapidly grow. Our industry would recover its competitive strength.
A start could, perhaps, be made in the car industry. Nothing could be more calculated to stimulate the British economy than a boom in that industry. I welcome the fact that Leyland is now able once again to export to the Arab countries. That is the sort of reciprocal trade that we require. We need their oil and they need our motor vehicles.
Whatever international organisations we may be linked with must be flexible enough for our country to take the necessary steps to gets its economy back on on its feet. The challenge is to the Western world as a whole. What good can an impoverished Britain be to any international organisation?
The Government must be warned that they will not indefinitely get away with unemployment at the present rate. I appreciate that the social security

benefits are cushioning the blow, but as they run out the Government could run into trouble. If unemployment persists, the trade unions will be less willing to accept a voluntary incomes policy. The recent trouble at the SU carburettor plant was the writing on the wall. The Government should take heed of it.

6.14 p.m.

Mr. William Clark: Without being too pessimistic I believe that in discussing the Budget and giving a judgment on it we should take the economic background as we see it. Britain has a future, but I do not think that we have a future if we continue to do an ostrich-like act and do not face the facts.
Production is lower today than it was in 1974, even during the three-day week. We must do something about that. Nobody need necessarily argue the dogma of the mixed economy, but there must be something wrong in a mixed economy which is 60 per cent. State owned and only 40 per cent. privately owned. That is another matter which we should examine.
When they speak about pay rises people today never seem to think that those rises should come with increased productivity. Without increased productivity any pay rise will merely increase the cost of the goods produced. Another factor that we must consider is that since 1974 the value of the pound in purchasing terms has declined from 100 to only 69.
That is the background against which we should judge the Budget. The Chancellor said in last year's Budget Statement that he would make the people howl with anguish by his taxation. He has now seen what has happened. The law of diminishing returns is operating in many areas, including taxation and many aspects of productivity.
On television last night the Prime Minister said that we could not keep borrowing. I wonder whether he had a word with the Chancellor about the borrowing we have done this year. The Chancellor threw in as a mere aside that borrowing to 31st March this year was £10,750 million. That is the amount by which we overspent. It means that we are overspending at just over £21,000 a minute. If I speak for about 10 minutes the country will have overspent by nearly


£250,000 by the time I finish. Our children will eventually have to pay back the money borrowed.
In what was more or less another aside the Chancellor said that the borrowing requirement for the coming year would be £12,000 million. Where are we going? Everyone seems to think that oil will bail us out, but the most optimistic forecast for the product from oil when it is on full stream in about 1980 is £1,800 million. If we borrow at the present rate for the next three years the servicing of the debt we are building up will cost about £3,000 million a year. That figure excludes any repayment of capital. It is criminal folly for the Government to borrow at that rate. There is no point in Labour Members, including Ministers, asking us "Where would you cut public expenditure?" Public expenditure must be cut for we cannot continue to overspend at the rate of £12,000 million a year.
The Chancellor will soon have to return to the IMF, which will, no doubt, put stringent restrictions on any further borrowing. It is all very well to have the ability to borrow from the IMF, but it will not lend us money without strings attached. The Chancellor should have spent a little more time on how he thought he could reduce the borrowing requirement.

Sir Raymond Gower: Is it not a fact that the last borrowing from the IMF was used up rather rapidly?

Mr. Clark: Yes. It was just under £1,000 million, which is one month's overspending. That was tied up with the oil tranche, which the IMF had agreed with its members should be given with no strings attached. That was why we got £1,000 million without any stringent regulations.
It is the Government who must decide, as my hon. Friend the Leader of the Opposition has said. It is no good Labour Members asking "Where would you cut?" It is the Government who must cut. They must try to get the revenue of this country in balance with the expenditure of this country. The Prime Minister said last night on television—and I so much agreed with him—that we need a national effort.
That means an effort on all sides. It does not mean selecting one section of the community and giving that section preferential rights. It does not mean that we should go on nationalising. Let us do so if we have the money, but there is no point in borrowing money to nationalise. Any business man will agree that that is the road to ruin.
As my right hon. Friend the Leader of the Opposition said, the Chancellor must look at how social security benefits work. There is a tremendous amount of frustration in the country when people who are in work are living next door to, or near to, others who do not work and who are in many cases better off than those who are working. There must be something wrong with our society if we allow that to continue. Another thing we must look at in social security is the deep frustration that is felt when working people see coming into their community a stranger, probably someone who has only just arrived in the country, and who, 24 hours after arrival, has a right to pick up taxpayers' money. Surely, there must be something wrong there.
The tax credit system, jettisoned—alas—by the present Government when they came into office, to a certain extent alleviated this because the anomaly of our present tax system is that there are two types of income. There is taxable income, and there is untaxable income for those on sick pay or social security benefit. As my right hon. Friend the Leader of the Opposition said, to make social security benefit inflation proof but not to give inflation-proof income to the worker means storing up trouble for ourselves not only economically but, I suggest, socially also.
I was disappointed at the small amount of time the Chancellor spent on private enterprise. You, Mr. Speaker, will know better than most that the private enterprise sector produces something like 93 per cent. of our exports. I would have thought that to be a section of the community, a part of our economy, which should have a great deal more help. It is true that the Chancellor has increased the limit for small businesses from £20,000 to £25,000, but he has only taken into account the inflation rate. The small business man has not been made any better off.
As for "perks" and fringe benefits, all hon. Members, on both sides, agree that there should not be tax evasion there, and that any personal element of such benefits should be charged; but we have to be very careful. It is no good picking out the business man and saying to him "You have the enjoyment of a motor car, a chauffeur and the rest; some of that is a personal benefit and consequently you will be surcharged in income tax so much on that benefit." We cannot do that without at the same time extending it to Ministers or civil or other public servants. They should not be treated differently from business men by such taxation. Otherwise, we are going to create two nations. We have more or less done so with the inflation-proof pension that civil servants have, but what can we or the Chancellor do?
The Chancellor seemed particularly naive as to the present position of sterling. He had the audacity to stand at the Dispatch Box and say that confidence in Britain was growing and growing. That is something which has escaped me up to this moment, because sterling is at the lowest it has ever been. If that is the situation with sterling when people have confidence in Britain, where would sterling be if they did not? I really think the Chancellor should treat the House with greater respect, because I can assure him that we are not all fools in the House of Commons. For him to say there is growing confidence when in fact the £ is at an all-time low in itself creates less confidence among those abroad, who will say "They must have a funny Chancellor there: if he thinks there is confidence in Britain, does not he understand that it is when there is no confidence in a currency that it automatically goes down?"
On a point of detail, the Chancellor has it all wrong from an economic point of view on the capital gains tax. I will not argue the details, but to my mind it is ridiculous for him to assert that this tax is not a tax on inflation. It is not in the same class as the incremental rise or salary increase which people receive. It affects something which is purchased for £1,000 and held for one, two or three years and sold eventually for £2,000. The purchasing power of that £2,000 is identical with the purchasing power of the original £1,000. Yet there is this tax on

it. The Chancellor has it absolutely wrong on this.
Personally, I believe this is an irresponsible Budget in that I do not believe the Chancellor has grasped the nettle. It is certainly partisan, but it is not dealing with the cancer that has been referred to, the cancer of our overspending and our over-borrowing requirement. That is something which we cannot continue, because the one basic freedom that anyone has is that of being able to spend his own money in whatever way he likes. If this Government, or the Chancellor, are saddling future generations with huge debts, then that freedom will disappear very rapidly.
Last night the Prime Minister said that we must have honesty and fairness. I wonder whether he can ally that with this Budget. One of the main tax concessions is to assist the middle income group through the personal allowance. This will cost the Exchequer £930 million in a full year, but instead of the Chancellor taking the decision he has abrogated that responsibility, passing it to the trade union movement: and presumably if the Trades Union Congress does not deliver the goods, that £930 million will not be paid.
The trade union movement comprises 10 million members and the TUC is invariably elected by, on average, a 10 per cent. vote. So 1 million votes within the trade union movement determine the structure of the TUC. At the last election this Government had some 11 million votes. Why should the Chancellor with 11 million votes in the country behind him be subject to a body which is outside this House and which was elected by only 1 million votes—on a vote which in any case was not unanimous? Probably the TUC is dependent on 600,000 votes. Why should such a body, whether it be the Institute of Directors, the Confederation of British Industry or any other, thwart the wishes and desires of the British nation and of this House?
It is dangerous to democracy that in relation to a major tax relief we are pushing responsibility over to the TUC and saying "If you can deliver the goods on an incomes policy or on low incomes you will get £900 million." What about the other 14 million who are not


trade unionists, who also pay taxes? They have no one representing them. This is a retrograde step by the Chancellor. I am sure everybody hopes and trusts that he will get some rapport with the TUC. I am only suggesting that this rapport should not be made dependent on what happens to the taxation system. The real truth is that the Chancellor and the present Government are kidding themselves if they consider everything in the economic garden is rosy.
Many problems must be tackled. I have mentioned a few. The greatest one—till we solve it we shall not cure inflation—is the borrowing requirement. Unless we cut the borrowing requirement, inflation, high taxation and frustration will carry on. Indeed, not only will inflation carry on, but our children and grandchildren will have round their necks a mortgage debt which they will probably never be able to repay.

6.31 p.m.

Mr. Donald Stewart: I trust that the hon. Member for Croydon, South (Mr. Clark) will forgive me if I refrain from commenting on his speech. I do so in the interests of brevity. I have only time to make a few general points.
The general tenor of the Chancellor's speech was the old jam tomorrow—promises contingent on certain things which may or may not eventually materialise. Once again, the ailments outlined by the Chancellor were England's ills. The right hon. Gentleman said that we could not base the expansion of the economy on the general reflation of domestic demand. This is true in English, not Scottish, terms, because we do not have England's balance-of-payments problem.
The extra tax on petrol is inevitably a further severe surcharge on the cost of living in areas, such as my constituency, where people are almost entirely dependent on road transport. Some way must be found to alleviate that problem or the Chancellor will be guilty of operating discrimination against those areas.
The increase of 32p on a bottle of whisky is a severe blow to the whisky industry. Production was down by 19 per cent. last year. I accept that spirits are a logical target for the Chancellor

of the Exchequer, but there will be a day of reckoning, because the whisky will not be there to tax. The Chancellor should allow whisky the same credit period for payment of duty when it is taken from bond to the customer as the wine trade enjoys.
The Scottish National Party welcomes the plan for relating tax allowances to wage restraint, since it resembles the creative indexation proposals drawn up by the SNP before the last wage restraint package was introduced. But it lacks the virtues of the scheme put forward by the SNP—namely, no interference with the principle of free collective bargaining and the safeguarding of the position of the low-paid.
We also welcome the increase in penhions, but the six-months' delay in implementation will inevitably lead to a serious erosion in the value of the increase.
One shocking omission is the failure to remove the levy on the self-employed. The failure of a Labour Chancellor to remove that Conservative tax is to be deplored.
It is also a matter for great regret that, in his spring cleaning of the corners of the tax system, the Chancellor made no suggestion of ending the taxing of pensioners who, by carrying on working, shorten their dependence on State benefit.
I hope that the Chancellor will give due consideration to these points.

6.35 p.m.

Mr. Michael McGuire: I hope that the hon. Member for the Western Isles (Mr. Stewart) will forgive me if I do not follow his comments.
I found this Budget complex, but interesting. I want to comment on some of the points introduced by the Chancellor of the Exchequer in his Budget Statement. I want particularly to refer to the injustices of many of the proposed changes. I do so in the knowledge of hindsight, as I shall explain.
Sometimes changes in the tax laws are proposed to catch people who are avoiding, as distinct from evading, tax. I had brought home to me in an unfavourable way how a change in the tax law disadvantaged me. I do not recall how many years ago this happened.
I think that most hon. Members know that many years ago my son unfortunately


lost both legs in a road accident. He did not get any compensation, because negligence could not be proved against the bus company concerned. All he got was the benefit of a collection which was made by the men at the pit at which I worked. That sum was put away for him until he became of age. That money has been bringing in £120 a year in interest. I was also trying to add to this when I worked in the pits and also when I came here as a Member of Parliament.
I was astonished to receive a letter from the tax man saying that I owed money on my boy's investment. I was outraged when I went into the matter and found that if my boy had been awarded that sum by a court, it would not have been taxable. But, as the law was designed to catch those who were giving money to their sons to avoid tax, I was ensnared. Therefore, I have a deep suspicion about any proposed changes in the tax law, the efficacy of which will only be known later, because others are often dragged in and have to pay the penalty.
I think that a certain amount of hysteria has been generated in this country about what I call the old-age pensioners syndrome. Apparently, we must not say anything about the benefits which pensioners are to get or are receiving, as to do so will be looked upon as terrible. But to give a concession on the aged person's allowance is a little odd when, if we have money to spare, we should consider giving help to the disabled. Again, it will be seen that this is a personal reflection.
My boy, who is now a man taller than me, wears out clothes extremely quickly because of his artificial limbs. There is no tax allowance in this respect for the disabled. I suggest that that is unjust. Yet we are prepared to give several million pounds to people who, in the main, are doing all right. Not all old-age pensioners are in penury or poverty. A quarter—about 2 million—are, but the rest are doing reasonably well with their free bus passes and various other concessions. Therefore, I would devote more help to the disabled. There are many ways in which we can help them.
I should also give help to young families. Many young parents come to

see me at my surgeries. These young people are outside the limit for free school travel for their children. Some of them take their children to and from school three or four times a day to ensure their safety—I do not blame them for that—and that costs them a small fortune.
We should bring such matters to the attention of the Chancellor. If we are to make changes in tax allowances, let us make them on a sensible basis. Let us not be driven by what I consider to be the hysteria to help certain sections of the population who, on examination, probably do not need it as much as other groups.
I turn next to the reduction in the rate of VAT from 25 per cent. to 12½ per cent. I should like it to have been an all round 10 per cent. or 8 per cent. The Chancellor told us why he has chosen to leave one rate at 8 per cent. and to bring the other down to 12½ per cent.
The Chancellor's Budget proposals last year, which became operative on 1st May 1975 and put up the VAT on electrical appliances to 25 per cent., did incalculable damage to the electricity appliance industry. My constituents have suffered in consequence of the 25 per cent. VAT on television sets because, though it was not the direct cause, it certainly accelerated the closure of a factory in my constituency which employed 1,350 workers, most of them men.
The hon. Member for the Western Isles may not entirely agree, but that caused my constituency to have, if not the highest, one of the highest male rates of unemployment in the United Kingdom—namely, about 23 per cent. That rate is increasing steadily. Therefore, it will be appreciated that anything that will help to save jobs in my constituency, particularly in Skelmersdale, which has an industry which is affected by the 25 per cent. VAT, and even to encourage it to take on more workers, is to be welcomed. We should thank the Chancellor for reducing VAT, but we should have said in the first place that these increases are not thought out.
They are imposed too quickly because somebody says that increasing the current rate of 8 per cent., apart from retarding consumption, will bring in X hundreds of millions of pounds. The consequences of some of these changes


are catastrophic. Although I welcome the reduction, I would rather the rate had not been increased in the first place. If we are to change, I would rather we changed on a fair basis and reduced the rate to at least to 10 per cent., although I should like it to come down to 8 per cent. We should not in future have this kind of increase of over 300 per cent. The damage it did was catastrophic and the television industry is now saying that it will take a long time to recover.
We talk as though some of the things we are taxing are the prerogative of the very wealthy, but many appliances are used by the general public—hair dryers, electric fires and so on. There was no justification for imposing the higher rate.
On import controls, the Chancellor went over the ground which has been covered before in our debates on trade and he said that he was keeping a close eye on this subject. He seemed to indicate that he was thinking more along the lines of selective import controls, and that happens to be my own line of thought. I will not go into it now except to say that it would be beneficial to the country. Unfortunately, I think that in our present state we shall be driven to it. We have been taken advantage of by many countries.
To those of my colleagues and hon. Members in all parts of the House who ask how we can justify our commitment to the poorer countries of the world I would say that wiping out our textile industries would benefit the workers of those countries not a jot. We already have a penetration rate of 60 per cent. No other industrialised nation has any thing remotely like it. We should say to our colleagues in the other countries that when we have got on our feet, we will be as generous again.
I think that we shall be driven to this decision. I think that the Chancellor was absolutely right to say that the way for this country to get back to prosperity is to increase our industrial competive-ness. If we do not do, we are really on the slide and we shall slip down it all the faster.
That is the decision facing this country. We have to face that challenge and we have to tell our colleagues who work, as I once worked for a living, in the pits, for example, and in the factories that we have to meet that challenge. If

we do not, the world will soon tell us, as it has now, that the prospects for this country will become all the grimmer.

6.44 p.m.

Sir Raymond Gower: I understand how the hon. Gentleman feels and I understand the anxieties of those in areas which are dependent on industries suffering severely from overseas competition. Nevertheless, the hon. Gentleman may reflect that we are in a very exposed position ourselves, because we are dependent more on our exports than practically any comparable country in the world, apart from Japan. If other countries turned back on us with the same kind of policy of restricting imports, it would be much more injurious to us than our action would be to them.
The Chancellor's Budget Statement today has a very sombre background which, perhaps, we have not been aware of in the exchanges today. The hon. Member for Newport (Mr. Hughes) mentioned inflation, which still continues at a higher rate than in any comparable industrial country. Extensive unemployment still exists and there is the overseas borrowing mentioned by my hon. Friend for Croydon, South (Mr. Clark). There is also the terrible collapse in the value of sterling. Nobody who objectively considers the state of this nation at this moment can feel anything other than very profound anxiety.
The recent Report of the Expenditure Sub-Committee emphasised that the standards and criteria by which we measure our performance and prospects are terribly imperfect. This should not surprise us. It is a truism, which we tend to forget, that economics are far too dependent on human behaviour or human error to be an exact science, and in recent years we have tended to assume that modern equipment and the accountancy methods will enable us to ensure more accurate forecasts. Numbers of Chancellors in successive Governments have promised more frequent and accurate data on which to base our judgments. Recent experience suggests that not only must the data be improved but so must our methods of interpreting the available information.
Having had the honour of serving in this House for many years, I confess that


I have never felt quite so profoundly anxious about the economic future of Britain as I do today. I do not attribute all the blame to the Chancellor or his Government or, indeed, to any particular Government. The present Government must take some of the blame, and so must several earlier Administrations. They must share it with many people who are in other spheres of our national life. The malaise which affects the United Kingdom is too deep-seated and long-established to be excused by facile and partisan recrimination. Our problems are so grave as to demand something much greater than mere party interchanges on this matter.
This does not signify that I am making any sort of plea for coalition government, but I am pleading for a truly all-nation approach to be made to our difficulties. Obviously, Treasury Ministers cannot provide all the remedies, nor can the Government, the House, or Parliament as a whole. A great deal will obviously depend on the future performance of British industry at all levels—on management, sales staff and all employees throughout every organisation. No amount of juggling by the Chancellor with our available and limited resources can possibly compensate for faltering production and continued deficiency of quantity and quality in our industrial output.
It is claimed that we tend unduly to deprecate the real achievements of this country. I do not believe that. Too many of us are far too ready to make excuses for our failures. Too many of us underestimate the extent of our postwar decline. The first step towards real recovery is to recognise our predicament and shortcomings.
As you will be aware, Mr. Speaker, in another context it has been said that the first step towards virtue is to recognise our sin. It is the first step towards industrial and economic recovery to recognise our shortcomings now. If the whole nation recognised the size of our task, we should at least have won the first round.
It is against that background that we should measure the Budget Statement. In so doing we must recognise that we have one rather awkward disability, which was commented on by Helmut Schmidt,

the Leader of the German Social Democrats, a couple of weeks ago. The Labour Party has been taking great credit for its unique association with the trade union movement, which, it says, has been a source of great strength to the party. But Britain has suffered sadly and severely from the fact that the industrial divide coincides with the political divide, as it does not in many other countries, including West Germany. That was Mr. Schmidt's comment.
In that context, we have today had a Budget Statement which is a mixture of good and bad, of things which can be praised with things which can be criticised, along with others on which we might seek further guidance. But it contains nothing to match the enormous plight of this nation.
I certainly welcome some of the details. I welcome the VAT reduction, although I should have preferred the rate to be 10 per cent. My talks with industry, trade and commerce convince me that that would have been of great benefit.
I welcome the social security improvements. These have now been established as an annual, indeed, a twice-yearly, feature. But I do not believe that we have so tamed inflation that we should be going back now to an annual increase. We should retain the twice-yearly increase. There is no evidence that we have really conquered inflation and that we can now delay the payment of these pension increases, which we pledged ourselves at the last election to make twice a year. We were pleased to see that the Government had also begun to do the same. The return to an annual increase is a retrograde step in the context that I have sought to describe.
I welcome the help which is to be given to small businesses, which represent one of the most hopeful features of our economy, if successive Governments would only nurture and encourage them.
I can only echo the doubts expressed by the Leader of the Opposition about the Chancellor's strange new formula of conditional and unconditional income tax concessions. Perhaps they can be justified within the conventions of our Constitution, but superficially it would appear to be difficult to reconcile the two. It seems undesirable that some change in the income tax law will depend on a


decision by people outside Parliament—no matter who they are and what part of our national life they represent. It is only this elected House which should decide whether to reject or accept the Chancellor's proposals.
I plead with the Chancellor to reconsider some of these matters before his next Budget. With all the changes which are to be made—some of them improvements—I cannot see this Budget as a vita) contribution to the enormous task which faces us. That is my criticism tonight.

6.53 p.m.

Mr. Robert Hughes: There are a number of hazards about speaking on Budget Day, one of which is that it is difficult to encompass all the proposals. Another is that one is bereft of the marvellous quotations trotted out in the newspapers which make our Budget judgments for us. We have no crib sheets and we have to make our own speeches. A third hazard is that, if one speaks in the Budget debate, one is quickly whipped on to the Standing Committee considering the Finance Bill. I give notice that I have no intention of agreeing to that.
The Budget is in two halves. The first is the outline of the nation's accounts, the forecasting of unemployment and so on. The second deals with the tax changes, some of which are good and some bad. I unreservedly welcome the increase in pensions, as one always does. It is of major benefit. Secondly, I welcome the increase in the age exemption which allows people to earn more when they retire and still not be subject to tax. But perhaps we are going too far in neglecting other parts of the cycle of people's lives. We should not forget the great burdens on young couples who are starting their married lives. A balance should be struck. Probably at the moment it is more or less correct.
I want to take issue with the Chancellor and my namesake, my hon. Friend the Member for Newport (Mr. Hughes), about import controls. There may be a halfway house. I am very worried about the problem which import controls will represent for people in developing countries. It is no good saying that they can wait their turn until we are strong and can help them. We should

consider their problems in trying to build up an industrial society.
The Chancellor said that he could not reduce hire-purchase controls or credit restrictions on manufactured goods because that would lead to increased penetration by foreign imports. Presumably he was thinking particularly of Japanese television sets and motor cars. But we have so many different rates of taxation that I do not see why it would not be possible to have a differential rate of credit restriction on, for example, Japanese goods if that was the particular field we chose. In other words, we could be selective in our discrimination over imports.
Turning to pay policies, I am worried that the Chancellor should have accepted almost word for word the classic orthodox economic view that there is a direct link between pay, inflation and jobs. He is saying in effect that if trade unionists in particular ask for pay increases, inflation will be much higher and there will be a great deal of unemployment. Of course there is a link. I do not suggest that pay has no influence on inflation, but the constant harping on wage increases as the main reason for our increased inflation is quite wrong.
My right hon. Friend's approach, of offering tax reductions linked to an incomes policy, is an interesting one. We have never solved the question of differentials, however, and there have been problems in industry as a result. I am a flat-rate increase man. If we are to have pay controls, they should benefit the lower-paid worker as much as possible.
My right hon. Friend repeats the proposition that there should be no growth in the public expenditure cycle during the life of the public expenditure White Paper. It is all very well to talk about investment, but there is no guarantee that it will go to the right quarters. We should not forget that education is an investment in itself. Reducing the amount spent on education and health is to do the country a disservice, because that affects how our people produce and move on in future.
There is a great danger in our tendency to suggest to people that they can get services for nothing. People must realise that the services they demand must be paid for. I accept that people will have


to be willing to pay more taxes. The counter-argument is that one needs greater employment, and full employment at that. I welcome what will be done with the temporary employment subsidy.
We must get our economy back to full stretch, but the necessary 5½ per cent. increase in GDP and the 8½ per cent. increase in manufacturing output will not happen without a better policy towards North Sea oil and a more reflationary Budget. We could then go on to produce full employment and perhaps for the first time begin to work towards a Socialist Budget.

It being Seven o'clock, and there being Private Business set down by direction of The CHAIRMAN OF WAYS AND MEANS, under Standing Order No. 7 (Time for taking Private Business), further Proceeding stood postponed.

BRITISH RAILWAYS BILL (By Order)

Order for Second Reading read.

Motion made, and Question proposed. That the Bill be now read a Second time.

Mr. Speaker: Before I call the hon. Member for Islington, South and Fins-bury (Mr. Cunningham) I should tell the House that I have selected Instruction No. 1 for discussion.

7.2 p.m.

Mr. George Cunningham: I have been asked by British Railways Board to present this Bill to the House. Hon. Members will have received a copy of the Board's notes on the clauses of the Bill. I intend to amplify those notes briefly, particularly with regard to Clauses 18 and 19, which have given rise to dispute. Depending upon what happens during this Second Reading debate, if it seems appropriate I shall ask leave of the House at the end of the debate to reply to questions or comments.
I should draw the attention of the House at this stage to a misprint which appears in Clause 17, page 14, line 24 of the text, where the word "matter" ought to read "manner". No doubt whatever steps are necessary to correct that misprint will be taken in Committee.
Like many other public authorities, British Rail is obliged to seek authorisation from Parliament from time to time for quite a number of its activities. In the case of British Rail this need arises almost every year and authorisation is sought by means of an appropriate Bill promoted to the House and explained in this way, and the Bill does not stand in the name of the Government. Hon. Members will be familiar—I stress this point—with the extremely rigorous procedures that Parliament has adopted for the examination of the content of Private Bills. If the Bill tonight is given a Second Reading, it will go forward to a Private Bill Committee where its content will be examined in the very rigorous, quasi-judicial atmosphere of such a Committee. Tonight we are giving approval in principle to the Bill subject to its passing those later stages.
I do not intend to go through every clause. The clauses can be divided into


three groups. First, there are the technical provisions about title, interpretation, amalgamation with previous Acts, and so on. Secondly, there are clauses authorising local works of one kind or another, none of which this year, apart from the two I have mentioned, so far as I know gives rise to objection; and there are the powers of land acquisition associated with such local works. Finally, there are the two matters of police powers and the Tilbury-Gravesend Ferry, to which I shall come at the end.
The local works provisions are in Clauses 6 to 9. The provisions prescribing the extent and manner of land acquisition are in Clauses 10 to 17. Some of the works are for the Board's own benefit and some are to fulfil the needs of passenger traffic executives. For example, Works Nos. 1 and 2 are new railways in Benton, near Newcastle-on-Tyne. The Tyne and Wear Transport Executive intends to construct a local rail network and Works 1 and 2 will enable that network and the British Rail system to be separated so that they are not obliged to double up on certain stretches of track.
As regards land acquisition, the procedure laid down by the Bill is the same as that of the Compulsory Purchase Act 1965 by reference, and in the usual way there is a time limit for acquisition under the Bill, which is the end of 1979. Similarly, in accordance with normal practice. Clause 25 means that if the authority of the Bill is not used within 10 years, the automatic planning permission conferred by the Bill will lapse.
I come now to the two more controversial clauses. The first is Clause 19, which deals with the Tilbury-Gravesend Ferry. Although in common sense the Tilbury-Gravesend Ferry is one ferry, legally it is two, one going north from Gravesend to Tilbury and one going south from Tilbury to Gravesend, and each has a distinct legal basis. These ferries are not just services that happen to be provided: they are both franchise or common law ferries thought to originate—"thought" because their origin is so ancient—in grants from the Crown. That means that they are corporeal hereditaments, a form of real estate which may be sold, leased or assigned, but which cannot be extinguished unless it reverts to the Crown

or by Act of Parliament. That is the purpose of this part of the Bill.
Without going too much into history, I take this occasion to say that British Rail owns the freehold of the northbound ferry and has a leasehold on the south-bound ferry which will terminate in 1980. It is in the nature of such a franchise or common law ferry that it carries not only rights but conditions and, indeed, onerous conditions. Under the burden of that legal obligation, the British Transport Commission and now the Board have been providing a service between 5.15 a.m. and 6.20 a.m. on Sundays—and 11.50 p.m. This service employs two boats and four crews, with supporting clerical staff. It is a 15-minute service in peak hours and a 20-minute service at other times.
Before the Dartford Tunnel was opened, the ferry was running at a profit carrying passengers and vehicles. Since the tunnel was opened, traffic has fallen off dramatically, as would be expected. In 1961, 3·3 million passengers were carried, and the figure in 1965 was 750,000. This year, 1976, the estimate is 650,000. The ferry has made a loss in every year since the tunnel was opened in 1963. Kent and Essex County Councils made grants of £36,000 towards the cost of the ferry in 1974–75 and £46,000 in 1975–76, but both county councils have now stated that they cannot continue the grant, and it ceased as from 31st March 1976. Even with the grant, the estimated loss for 1976 was £116,000.
The obligation to ferry vehicles was terminated by Act of Parliament around the time the tunnel was being constructed. Now the Board seeks the termination of the common lay duty with respect to the rest of the obligation. Petitions have been lodged against this clause and I have been authorised to tell the House that British Rail is prepared to undertake to seek leave in Committee to amend Clause 19 so that while the common law duty will be removed, the Board will continue to run the ferry service between Tilbury and Gravesend until such time as the Secretary of State gives his consent to its discontinuance.
Further, no such consent shall be given until the relevant area transport users' consultative committee or committees have considered representations made as


a result of Section 54 of the Transport Act 1962, which requires publication of the Board's intention to discontinue shipping services, and until the area committee or committees have made a recommendation to the Central Transport Users' Consultative Committee and that Committee has considered the representations and made its own recommendation to the Secretary of State. I understand that this proposal has the support of the Department of the Environment, but no doubt the Minister will intervene later to say so directly.
I think that the House will agree that the opening of the Dartford Tunnel and the consequent loss of traffic on the ferry, together with the cessation of grants from the local county councils and the scale of losses daily being incurred, are grounds for removing this ancient obligation. British Rail has demonstrated its concern for passengers' interests by the statement I have just made and the new clause which will be moved in Committee. I hope that this arrangement allays the anxiety felt by some hon. Members about this matter.

Clause 18 deals with the powers of the British Transport Police. When the British Transport Commission was formed in 1948, it inherited from its predecessors—the four main line companies and the London Transport Passenger Board—five separate police forces. These were amalgamated after nationalisation into a single force, which is among the largest police forces in the United Kingdom. Under the Transport Act 1962 and the British Transport Police Force Scheme of 1964 the forces continued as a single force under the British Railways Board, making it services available to other nationalised transport authorities.

The four main-line railway companies each obtained powers before nationalisation under which any constable was entitled to stop, search and arrest without a warrant persons employed by, on or upon the property of the railways who was reasonably suspected of having in his possession anything stolen or unlawfully obtained on or from railway premises and under which such persons might be convicted summarily of having in their possession articles reasonably suspected of having been stolen or unlaw-

fully obtained if they were not able to account satisfactorily to the court for being in possession thereof. These powers, in substantially the same form, have been passed in previous legislation, relating, for example, to the Metropolitan Police.

After the British Transport Commission came into being, those powers were replaced by Section 54 of the British Transport Commission Act 1949, the powers of which, like those of the London and North-Eastern Railways Company, applied throughout the Commission's area and not only in selected parts, but they were similarly limited to a period of years. This limitation of the powers to a fixed time gives rise to the necessity for British Rail to put something in its Bills from time to time to extend the period of validity of the powers.

Parliament has since granted four successive extensions of five years and one of two years and five months in the Commission Acts of 1954 and 1959 and the British Rail Acts of 1964, 1969 and 1975. Unless they are accepted, these powers will expire at the end of this year.

The House may wish to have some statistics on the use of these powers. In 1975, 311 people were detained under Section 54, of whom 44 were acquitted. Of the 267 who were convicted, 260 were convicted of theft and seven of unlawful possession. It is the view of British Rail that if these powers of search were not provided in Section 54, few of these people would have been detected.

The Minister of State, Home Office (Mr. Alexander W. Lyon): My hon. Friend talks about Section 54(1) and the powers of arrest and search and quotes statistics of convictions which relate to theft. Is there any requirement for Section 54(2) and have there been any convictions under this part of the section?

Mr. Cunningham: I am trying to give statistics which relate in part to subsection (1) and in part to subsection (2). I did not say that persons had been convicted under the Theft Act. I said that 260 were convicted of theft and seven of unlawful possession—which would have been under Section 54(2) of the British Transport Commission Act.
The value of the property stolen in the cases dealt with by the British Transport Police was £2·3 million in 1974 and £2·2


million in 1975. I could respond more fully to the gist of the intervention by the Minister, but since I understand he intends to speak later, it would be better for me to comment, if necessary, after hearing what he has to say.
I know that there is a feeling among many hon. Members—and there has been on every occasion when these powers have come up for renewal—that such important police powers, affecting the right of arrest and creating an offence, should be in public and not private legislation. I have some sympathy with that view, but Parliament has brought about the situation in which British Rail is obliged to seek the authority of this House and another place for repeated extensions of its powers in private legislation. British Rail did not draw up the British Transport Commission Act 1949 and it was not in its power to put these provisions into public law on a permanent basis.
British Rail's duty is to ensure that the police for whom it is responsible continue to have the powers given by Parliament in the first place, on precedents, and which they need if they are to continue to do the job for which Parliament created them. These powers will expire on the last day of December this year unless they are renewed. If the Home Office thinks that it would be a good idea for this kind of power to be provided for in public legislation, J hope that Ministers will say that, before 31st December, they have some chance of bringing in and passing through all its stages a Bill to achieve that purpose.
British Rail has done its job in bringing in the Bill and in correspondence with the Home Office before the Bill came to the House. There has been notification by British Rail to the Department of the Environment, as is required by statute, of the coming forward of the Bill and its content. As is required by statute, the Government's approval was given to the coming forward of the Bill, with this clause in it.
Although such approval does not commit the Government to supporting any clause, preparatory steps to change the situation could have been taken many months ago. British Rail has done its part to ensure that these powers are extended as necessary. If in some part

of the Whitehall forest there has been something less than alacrity and attention to duty in changing matters which it is apparently intended now to change, no blame can attach to British Rail for that. Large public corporations should not be subjected in the management of their affairs to last-minute harassment by Government Departments.
I hope, therefore, whatever doubt hon. Members may have, as I have, about the desirability in the long term of legislating for this purpose in a Private Bill, or in this language, they will ensure that the Bill has its Second Reading tonight without any Instruction with regard to Clause 18, and that—as has so often been promised in the past but has never been done—some time, long before a Bill comes forward further to extend these powers, Whitehall will do its job and take steps well in time before the next occasion when we discuss these matters.
I am grateful for the patience of the House in listening to my long introduction. If points are raised during the debate to which it would be appropriate for me to reply, I shall ask the leave of the House to do so.

7.22 p.m.

Mr. Sydney Irving: The need for the debate and the reason for the blocking motion arise from the inclusion in the Bill of Clause 19 which releases British Rail from the obligation to run a ferry from Gravesend to Tilbury. This action was precipitated by the decision of Kent and Essex County Councils to withdraw the subsidy of £23,000 each which they had been paying to British Rail to continue the ferry service.
I regret that it was impossible for the county councils to continue the subsidy, because the ferry provides a service for the people who work on one or other side of the river which can be provided in no other satisfactory way, as the cost of travelling from the area of the ferry to the Dartford tunnel, under the Dartford tunnel and back, is prohibitive in time and money, especially for those who have to go to work very early in the morning. Incidentally, there is an application to double the total charge for the tunnel.

Mr. George Cunningham: That applies particularly to people who have no motor car.

Mr. Irving: It applies especially for those who have no motor car. For people who need the ferry to enable them to get to work, its discontinuance would mean that they would either have to move house or find another job. The £23,000 was not too high a price to pay to avoid such hardship.
I recognise the problems of British Rail in keeping going uneconomic services, and I cannot blame British Rail for seeking some relief both from the common law and the statutory obligation to keep the ferry going and also from the loss involved.
British Rail has come a long way in trying to meet the objections of hon. Members and of the local authorities concerned by being prepared to accept the amendment announced by my hon. Friend the Member for Islington, South and Fins-bury (Mr. Cunningham). The amendment would continue a statutory obligation to maintain the ferry although not quite to the standard sustained by the two boats at present in commission. The proposed amendment virtually puts the proposal for the closure of the remaining ferry on all fours with the ordinary rail passenger service, invoking the full procedure of Sections 54 and 56 of the 1962 Act to require reference to the Central and Area Consultative Committees with the final decision to be taken by the Secretary of State.
Although I am prepared to accept the amendment to allow the Bill to make progress, there are two matters which I wish to raise. First, I am advised by my local authority—the Dartford District Council—that while it welcomes the amendment, it feels that to meet its full objections the amendment should include provision for notice to local authorities of the wish of British Rail to close the ferry, and for the holding of a local inquiry, with the requirement that it should take into account social need. The council will press this requirement in Committee, and I hope that the promoters of the Bill will do their best to meet it.
Secondly, while I congratulate British Rail on its action in proposing the amendment, I cannot congratulate it on its further action in proposing that 18 jobs should disappear. This would mean that British Rail is going much beyond the requirements of the amendment and is

seeking to save a greater amount than the present loss of income caused by the action of the county councils in withdrawing the subsidy. British Rail has said that the withdrawal of the subsidy would mean a comprehensive review of all aspects of the service, including fare levels, methods of operation and other factors. Surely these measures can make some contribution to saving money, and British Rail should withdraw its proposals for redundancies and reconsider the matter.
The ferry meets a real need of some of my constituents and its withdrawal would cause serious hardship. I hope that British Rail will continue to run the ferry and be able to mitigate the worst effect of the redundancies by reconsidering its proposals.

7.26 p.m.

Mr. Hugh Delargy: I wish to draw the House's attention to Clause 19 which deals with the ferry between Tilbury and Gravesend. The liability on British Rail is to maintain the ferry service for the benefit of the public. When my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) described the ferry, he did not emphasise this aspect of public benefit. He gave the impression that the ferry service was an ancient service going back for centuries which was not very useful at present.
To people who live in Tilbury and Thurrock, and indeed on both sides of the river, the ferry is an essential method of public transport. It is true that the number of passengers has decreased since the building of the Dartford-Purfleet tunnel but, as my hon. Friend said, 750,000 passengers crossed by the ferry in one year according to the latest available figures. That is a large number of passengers, and they will be seriously inconvenienced if the ferry is discontinued.
To alleviate our fears, my hon. Friend told us that British Rail would move an amendment in Committee. The amendment is to the effect that the Secretary of State may discontinue the service after he has heard representations from the Area Committee and the Central Committee. That amendment does not satisfy us. The Secretary of State alone will still have the power, no matter what the Committee


says, to discontinue the service. According to the amendment, the Secretary of State may or may not accept the recommendations of the Central Committee. In its turn, the Central Committee may or may not accept the recommendations of the Area Committee. It is not obliged to listen to representations from anybody or from any group of persons, although the Department of the Environment says that it will apply the full procedure of the Transport Act 1962 under Sections 54 and 58.
In effect, it will do nothing of the kind. There is no provision for the advertisement of any proposals. There is no machinery for receiving or considering any representations which are made. There is no provision for verbal representations. There is no provision even for the holding of a public inquiry. There is no direction how the Area Committee is to arrive at the recommendations that it makes to the Minister.
Notice of any proposed closure need be given only by advertisement in a local paper for two consecutive weeks. That does not seem very satisfactory. There is no direction about hearing objections. The recommendations and conclusions of the Committee are not notified to the objectors. The objections of the Area Committee to the Central Committee, or those of the Central Committee to the Secretary of State, need not even be published. Furthermore, there is no appeal procedure.
The present proposal is that the closure remains a matter for decision only by the Secretary of State. The matter will be decided by the Secretary of State and by no one else. That does not satisfy the authorities on either side of the river which are especially concerned about the service. My hon. Friends and I maintain that if the service is to be discontinued now or at any other time it should be a matter for the courts or Parliament, and not only for the Secretary of State. That is our main grievance against the clause.
When British Rail says that the ferry service should not be treated as a real rail passenger service, I believe that it is making a mistake. We all know that British Rail makes that claim because a subsidy will not be attracted as in the case of the rail services. We have heard

about the loss that the Tilbury Ferry made last year, but I remind the House that the profit made on the rail service between Fenchurch Street and Tilbury was more than twice as much as the loss made on the Tilbury Ferry. British Rail has not been anxious to publish those figures, but they are true.
Although the amendment gives some relief, and although we have had talks about it with the British Rail agents, it does not go as far as the local authorities would wish. It appears that the ferry service should be deemed part of the rail service and should attract a subsidy. Although we shall not vote on the Instruction on your ruling, Mr. Deputy Speaker. I urge the Committee—

Mr. Deputy Speaker (Sir Myer Galpern): Order. There has been some misunderstanding. I have given no such ruling.

Mr. Delargy: I am sorry, Mr. Deputy Speaker, I thought you said that Instruction I was to be called—

Mr. Deputy Speaker: I said nothing about a Division. Instruction No. 1 will be called if we reach it in time. We are now discussing the Bill's Second Reading.

Mr. Delargy: I thought you said that only Instruction No. I was to be called, Mr. Deputy Speaker. One of us is making a mistake, and probably I am at fault.

Mr. Deputy Speaker: Mr. Speaker indicated that he had selected Instruction No. 1. We are now discussing the Bill's Second Reading.

Mr. Delargy: Thank you for your guidance, Mr. Deputy Speaker.
I ask the Committee to examine closely the proposed amendment from British Rail. It looks very nice on first reading, but it is not as good as it seems. It does not give my hon. Friends and me the satisfaction that we wish. It gives too much power to the Secretary of State and takes power away from the courts and Parliament. It would be greatly to the inconvenience of hundreds of thousands of working people.

7.36 p.m.

Mr. Roger Moate: My interest in the Bill is limited solely to


Clause 19, the clause that is concerned with the Gravesend-Tilbury Ferry. I shall detain the House only briefly. Other hon. Members have a much greater and more direct interest in the matter.
My concern arises from the fact that my own district council, the Swale District Council on the Kent side of the river, expressed the desire that as the local Member of Parliament I should oppose the clause. I believe that other district councils in the area have also taken that view on the basis that the ferry link is of strategic importance to Kent.
Having received such a request from the Swale District Council, I proceeded to make further inquiries of British Rail and Kent County Council about the logic behind the proposition that the legal obligation to continue the service should be terminated.
My inquiries have left me in the unfortunate position of being totally open-minded, in a position of not being quite clear what decision should be taken about the service. I can well imagine that if I represented Gravesend or Tilbury I should be concerned about the closure of a service that is still widely used today, even allowing for the enormous decline in numbers. I believe that it is used every day by 1,000 people to get to their places of work.

Mr. Delargy: It is used by many more.

Mr. Moate: I am sure that the hon. Gentleman will be able to correct my figure if he catches your eye, Mr. Deputy Speaker. In any event, the ferry is used by many people who would find it difficult to take up alternative means of getting to and from their traditional places of employment. I can well understand their alarm at the prospect of closure.
On the other hand, the facts of life are harsh and clear. In the past decade or so the traffic has fallen from several million a year. It has fallen quite dramatically for clear and precise reasons.
It has already been said that the usage has declined because of the opening of the Dartford Tunnel. Other reasons were given in the county councils' evidence. It said that a reason for the decline in patronage of the ferry is the opening of the Dartford Tunnel. It said that another reason is the reduction in job opportuni-

ties in the area served by the ferry. Improved railway services in Essex, and the provision of a free ferry service for employees of the Ford Motor Company between Belvedere and Dagenham, have all contributed in lesser or greater degree to the decline in usage.
Those are sound economic reasons and strong arguments against fossilising traditional transport services regardless of changed economic circumstances. This is not an argument involving political philosophy. It would be illogical blindly to continue to subsidise a ferry service that has been largely replaced by the more modern facilities of a tunnel. I can well understand the arguments put forward by the Kent and Essex County Councils.
British Rail, having subsidised the service for two years and being faced with heavy losses, must examine the situation carefully in the light of current economic facts. It seems reasonable that British Rail should say that it cannot continue to operate on the present lines. I understand that the loss would be about £142,000 for 1976 without a subsidy. That is a considerable sum. It is understandable that British Rail should seek to be relieved of its obligation.
I believe that the right hon. Member for Dartford (Mr. Irving) said that there is a proposal that the service be reduced to one vessel. I have not seen that proposal in any of the documents in my possession.

Mr. Irving: I think that that proposal may be involved in the amendment which reduces the obligation and which was part of the conversation that took place with the agents and the promoters of the Bill.

Mr. Moate: It seems to be a logical proposition, but it is not referred to in the amendment.
I should be interested to know whether British Rail will be able to reduce the service to one vessel or to make any other reasonable economies in the provision of ferries within the present legal obligations, or whether there is a need for it to be relieved of those obligations in order to make sensible and desirable economies.
Despite the request made to me that I should oppose the clause, I believe that there is a strong case for the matter to be examined in Committee. One hopes


that some way will be found to preserve some kind of service for the people of Tilbury and Gravesend. In the belief that the Committee will examine this matter in far greater depth, I shall not seek to oppose the clause. I shall remain open-minded and hope that the Committee will give the matter the deep and searching scrutiny required.

7.42 p.m.

Mr. John Ovenden: I seek to address the House solely on Clause 19 of the Bill. Most of us would agree that the major part of the Bill is unobjectionable, and indeed many of its provisions may be beneficial. I sought to table a blocking provision, and I certainly express the strongest misgivings and the objections of my constituents to the proposals in Clause 19. That clause seeks to remove from British Rail an obligation to provide a Gravesend-Tilbury link.
The ferry goes back a long way in history. There has been a ferry service operating at this point on the Thames for many years. The first recorded reference in local history was the year 1399, but it is generally thought that the ferry operated in Roman times.
Throughout the centuries, the job of running the ferry has devolved on various individuals and organisations. It was eventually acquired in 1854 by the former London, Tilbury and Southend Railway. That company later took on a mandatory obligation to operate the ferry in a northerly direction and the right to operate it in a southerly direction. As a result of successive company mergers and eventual nationalisation in 1948, the ferry now forms part of the British Rail's Shipping and International Services Division. There is apparently no support from public funds for that section of railway operations.
The House should examine closely whether it is logical for a service, which by its nature is internal, to be regarded as part of an international division. The ferry is in no way comparable to cross-Channel services or shipping operations but is directly comparable to normal road and rail transport services. It seems ludicrous that although vast sums of public money are expended on uneconomic rail services, internal ferry services are expec-

ted to be profitable or to face the prospects of closure.
Perhaps I may quote one example in my constituency. For many years vast subsidies have been poured into the Ashford-Hastings railway line. That can never be an economic proposition yet, for social reasons, successive Governments have rejected the idea of closure. I claim that the Gravesend-Tilbury Ferry has a far greater claim on public funds and that its closure would be a catastrophic blow to the area concerned.
British Rail must answer the question why it is pursuing the ferry problem in a way proposed in Clause 19 rather than by seeking powers to transfer the service to a division where it could be treated as a candidate for subsidy, or by seeking an amendment to present legislation enabling it to continue this type of service as a subsidised service.
There is an overwhelming case for the service to be viewed on social grounds. The ferry is vitally important to my constituents and to the constituents of my hon. Friend the Member for Thurrock (Mr. Delargy) and of my right hon. Friend the Member for Dartford (Mr. Irving), and indeed to people in much wider areas throughout Kent and Sussex.
It is an indisputable fact that ferry traffic has declined since the opening of the Dartford-Purfleet tunnel. However, the ferry link is still vital for hundreds of people. Journeys may have declined to 750,000 a year, but that still represents a thousand return passenger journeys per day on that ferry. According to a British Rail survey in 1973, 63 per cent. of journeys were made for purposes of employment. There is no reason to believe that the proportion has changed and therefore over 600 people depend on the ferry link to reach their jobs every working day.
A large number of my constituents in Gravesend work in the Tilbury docks, and although employment has declined in recent years the go-ahead has just been given to a £16 million expansion project at Tilbury. We are hoping, optimistically, that that will provide an expansion of employment in the area.
But what will happen if the ferry closes? Even for those ferry users who have access to private cars, the closure


of the ferry would cause serious inconvenience. The alternative is a 15-mile round trip by road via the Dartford-Purfleet tunnel. That would be costly, inconvenient and time-consuming. In addition, it would add extra traffic to an already crowded A2 trunk road between Gravesend and Dartford. Any increase in the amount of road traffic occasioned by closure would be a factor weighing heavily in the decision as to the future of the ferry.
For many ferry users without private cars, closure would be a major disaster. The only alternative would be to travel into London either to the Woolwich free ferry or to a London rail terminus and out again on the other side of the river. The cost involved, and also the extension of the working day, would be an intolerable burden that few could afford to carry. For some the journey would be impossible. For those people who start work early in the morning on the Tilbury side of the river it would be impossible to get in to London by train and out again in time to begin work. Therefore, any closure of the ferry would deal a grave blow to the economic life of Gravesend and its surrounding district and also to the Essex side of the river.
The economic and commercial activity of North Kent and South Essex are closely interwoven. Without the ferry, people on the Kent bank would be isolated from their jobs in Tilbury docks and the Essex factories. This would result in an intolerable increase in unemployment of both sides of the river and a general decline in economic and commercial activities. It is a prospect which no public respresentative in either area could allow to happen.

We see Clause 19 of the Bill as a serious threat to the ferry service and to the economy of our area. Everybody involved in the fight to save the ferry has received virtually the same assurances about British Rail's intentions. We are told that there is no intention to close the service but only to remove the common law obligation to provide it. The sceptic might rightly ask why, if there is no intention to close the ferry, the promoters should pursue this costly and involved Private Bill procedure at all. There are fears in my constituency that

once the obligation is removed, we shall have no protection against eventual closure. If the petitioners against the Bill are to be persuaded to withdraw their objections, they must have clear and categorical assurances about the ferry's future.

Unless agreement can be reached in Committee, those of us who represent constituencies which are affected must carefully examine our position when this Bill returns to the House at a later stage. We are prepared to allow the Bill to proceed to Committee without Division so that the petitioners may put their case to the Committee. However, if a satisfactory solution cannot be reached in Committee, I shall oppose the Bill in its further stages.

So far British Rail has proposed an amended form of Clause 19. According to the promoters, this new clause will mean the involvement of the Secretary of State. It will mean that the Secretary of State will make the final decision. It will involve the Area Consultative Committees and, we are told, a machinery that will protect the rights of ferry users and the public in general. I welcome that move. This is a great improvement on the Bill in its original form, but it still leaves very grave doubts.

It has been implied by some that the new wording means applying to the ferry the same procedures to protect the user as currently operate in the case of railway closures, but closer examination reveals that it does not. It goes nowhere near far enough to afford that sort of protection. The procedure laid down in the Transport Act in respect of railway closures is far more specific, and the full inclusion of this type of procedure in the Bill in respect of the ferry is the minimum offer that the petitioners can consider as acceptable. The procedures laid down for railway closures require publication of newspaper notices of proposals and refer specifically to the rights of users to object in writing. In addition, the Area Committee dealing with objections is specifically required to take into account and to report to the Minister on the question of hardship and proposals for alleviating hardship. There is no procedure of that kind referred to even in the amended Clause 19 that the promoters are now offering.

I hope that the Bill's sponsor could perhaps, even tonight, give us an undertaking that the full procedure that applies to railway closures will be included in full in the Bill by an amendment in Committee. If not, perhaps the Bill's sponsor could inform the House when he replies to the debate why such procedures cannot be applied to the ferry and what is special about the position regarding any future closure of the ferry that makes it separate and different from the procedures which are applied to railway closures. I cannot see why British Rail cannot give us this point and satisfy the petitioners on the matter.

If that is done we shall have some protection against ultimate closure, but we must have more than that. We must have firm assurances about the level of service in the future. We may have protection against closure, but what protection are we to have against a whittling away of the service? Ultimate closure will be in the hands of the Secretary of State, but there is nothing to prevent British Rail, as soon as the Bill becomes law, from embarking upon a course of progressive run-down of the ferry. Against that we have no statutory protection either within the present clause or within the new proposals put up by British Rail for consideration in Committee. We have no protection on the same lines as that currently afforded to us by the present common law obligation. Why should we and our local authorities be asked to surrender that right unless British Rail can assure us that the ferry service will continue in a viable and effective form?

There is no doubt in anyone's mind that the present common law obligation is a far better safeguard than any possible compromise, but we appreciate the problems that British Rail faces—problems which stem almost entirely from the most irresponsible and arrogant attitude of the Kent County Council and the Essex County Council in withdrawing their subsidy. That action probably makes service reductions inevitable, and such reductions are obviously inconsistent with the common law obligation that is currently imposed upon British Rail.

It is evident that no such reduction could take place while this common law

obligation exists. If and when service reductions take place, as I think they inevitably will, the blame must rest fairly and squarely on the shoulders of those county councillors in Kent and Essex who so wantonly abdicated their responsibilities for the maintenance of a vital public service, which is one of their responsibilities as a transport authority.

However, while we are all prepared to be realistic about British Rail's problems and about the need for a possible scaling down in its operations, the present proposals by British Rail to its staff go too far, and they put in jeopardy the maintenance of an effective service. The proposals issued only a few days ago by British Rail to its staff involve not only a cut-down from a two-boat operation to a one-boat operation but include reductions in staffing levels to the new statutory minimum crewing level.

That means, in effect, that should any of the men involved in the service fail for one reason or another—sickness, most likely, but for any reason—to report for duty, the operation of this service is in jeopardy and it cannot run at all. Therefore, the reaction of the staff of the ferry last week in withdrawing their labour for a limited period and holding a meeting to discuss this proposal was quite understandable and legitimate in the circumstances.

We think that this service can be operated effectively with one boat, but it cannot be operated effectively if the crewing level is such that it puts the operation and the running of that boat in jeopardy.

We are also told by British Rail that it is quite possible to run this service on a one-boat basis because it is possible to bring in a replacement boat if necessary. I have been told by people who have a great deal of experience on the river that there are very few boats that are licensed to carry the number of passengers involved, and that it would, therefore, be extremely difficult to bring in a boat at short notice to take over this service.

I ask British Rail to look again at this matter and to try to give us some assurance that an effective service can be provided with one boat, and that proper procedures are laid down for bringing in a reserve boat. I ask British


Rail to look again at the proposal put forward for staffing, which reduces the staffing level to a dangerous point, and to agree to undertake consultations not only with the staff involved but with the local authorities involved, and, if possible, with the trade unions involved, whose members are concerned with their travel-to-work problems.

I ask British Rail to go into all facets of this problem before it goes ahead with the type of proposal that was put to the staff last week. As a demonstration of British Rail's good faith in this matter, I hope that this document will be withdrawn immediately. It creates little cause for optimism about British Rail's future intentions, should it get the Bill carried into law, when we see British Rail immediately publishing proposals to reduce the ferry service to a dangerously low level even before the Bill has received its Second Reading. Those of us who say that we are worried that British Rail will use the Bill to whittle away the service to an intolerably low level have some justification for such statements because they are based upon the action of British Rail within the last week.

I ask British Rail to reconsider all aspects of this problem and to give the assurance for which I have asked. If British Rail cannot agree with the petitioners and give a satisfactory assurance in Committee, my hon. Friends and I must reserve our right to oppose the Bill at its further stages in the House.

7.58 p.m.

Mr. Arthur Blenkinsop: It may surprise hon. Members, but the Bill refers to a lot of matters other than ferries. I do not blame my hon. Friends for taking up a matter of obviously great importance in their area. In the past I have fought ferry battles in my part of the world, and I sympathise with my hon. Friends. However, I am concerned with a relatively brief issue concerning Clause 6, which relates to the question of building new track in the North-East—not on the Thames but in the North-East—very near to my home and my constituency.
The importance of the provision in Clause 6, as the explanatory statement makes clear, is that it is related to the exciting new development in transport

of our rapid transit scheme on Tyneside, and is required to enable British Rail to possess separate rail facilities in a stretch of this new rapid transit scheme where otherwise there might be some danger of blockage of traffic or some difficulties about traffic flow, for British Rail or the new transit scheme. I should like to know whether a considerable financial contribution is being made to this proposed section of line by the Tyne Wear Passenger Transport Executive which is responsible for the main development of the new rapid transit scheme—a contribution which I believe runs into some millions of pounds.
I should like to know also whether we can assume from the Bill that British Rail is fully determined to come to an agreement and an understanding with the Executive in order to ensure the efficient and effective operation of a scheme which is costing the public large sums of money. Many of us in the North-East are concerned because some of the statements by British Rail seem to suggest that it is unwilling to allow this new and exciting development in transport to operate unless it has complete control of it, and that would be a tragic situation. I should like confirmation or otherwise on this point because we all understood that an earlier agreement of a very different character had been reached. I want an assurance before we part with this Bill that British Rail will not attempt to put a block upon this exciting new development in the North-East.
Presumably, we can assume from the Bill that it will not do anything of the sort. It would be absurd to provide in the Bill for the laying down of new line unless it was intended to ensure that the new rapid transport scheme was likely to go forward. It would be only right and proper that the House at some stage should have a full assurance on this matter before the authority is granted.

8.3 p.m.

The Under-Secretary of State for the Envionment (Mr. Kenneth Marks): I intervene at this time since it may be helpful to the House to know the Government's attitude to the proposals in the Bill. Our view on this occasion is quite simple. We have no objections to the powers being sought by the British Railways Board and we recognise that most


of the provisions will be of assistance to the Board in the improvement and effective operation of its undertaking.
It may also assist the House if I comment briefly on the Instructions that seek to amend the Bill. The first, which has been put down by the hon. Member for Burton (Mr. Lawrence), is a matter for my right hon. Friend the Home Secretary, and my hon. Friend the Minister of State will be commenting upon it.
The second Instruction concerns Clause 19, which is designed to extinguish the present obligation upon the British Railways Board to operate a ferry between Tilbury and Gravesend. This is, of course, one of the British Rail's shipping services. The general principle, set out in the 1962 Transport Act and continued in the 1968 Act, is that shipping services should be run by the British Railways Board where it thinks that they will contribute to its overall financial objective—to break even, taking one year with another. The general principle is, therefore, that the Board should be free to start new services on routes for which powers exist or to close existing services as it judges most sensible from its point of view.
This does not mean, however, that there is no provision for the public interest to be taken into account. Whenever the Board proposes to close a shipping service, it gives notice to the public and arranges for the local transport users' consultative committee to consider any objections received. If the TUCC and, in England, the Central Transport Consultative Committee recommend that the service be maintained, it is open to my right hon. Friend to direct the Board to continue the service even though the Board thinks it would be commercially better advised to close it. Obviously, if this were to happen, it would be necessary for the Government to consider such questions as to how the service might be financed.
To this general scheme, the Tilbury-Gravesend Ferry is an exception. I do not need to go into the history of the case. It is sufficient to say that in the course of the last century or more the railways have acquired a common law obligation to provide a ferry. I understand that the duties can be quite onerous.
The Bill therefore makes the changes necessary in order to put this shipping

service on the same footing as practically all other British Rail shipping services. As the Bill stands at the moment, this would mean that the usual procedure, involving a reference to the transport users' consultative committee, would be followed. I understand that the R ad-ways Board proposes spelling out these safeguards in greater detail in amendments. These would also make it necessary for my right hon. Friend to give a specific consent before the Railways Board could withdraw the ferry service. The Bill, therefore, would not deprive the users of this service of any of the rights enjoyed by users of similar British Rail services such as the ferry between Hull and New Holland on the Humber or between Portsmouth and Ryde on the Solent.

Mr. Ovenden: Although it docs not deprive the users of this service of any other rights enjoyed by the users of other ferries, will my hon. Friend make it quite clear that it does not bestow upon them the same rights bestowed by legislation upon users of the railway services? Why should there be a different approach on the two issues?

Mr. Marks: There is a difference between railways and other railway services, but there is an opportunity for subsidy by the county councils concerned and it is largely because of the withdrawal of this subsidy that this matter has arisen.
The number of people using this ferry has dropped very substantially since the opening of the Dartford Tunnel. In 1962, before the tunnel was opened, 3,387,000 journeys were made on the ferry. Last year the number of journeys was 740,000, which was about 1,000 people a day. I understand that the boats make about 50 trips a day and the capacity of the boats is round about 475.
The common law obligation has continued unchanged, which means that the pattern of operation is perhaps no longer that best suited to current demand. In the same way it may be that there are better ways of satisfying this demand than by the present type of ferry operation. I do not know. But I am certain that it would be sensible for there to be an examination of these questions. While this common law obligation persists, however, there would be no point in spending


time and money in carrying out such an examination.
The Government therefore agree that it would be sensible for the Board to be relieved of its common law obligation so that it can complete its present review of the ferry operation and make such changes as it thinks sensible—subject always to the right of the transport users' consultative committee to consider the questions, and to the requirement which would be introduced by the amendment that no closure could take place without the Secretary of State's consent.
My hon. Friend the Member for South Shields (Mr. Blenkinsop) mentioned the issue of the Tyne and Wear. I would prefer not to go into great detail on this matter, but I hope that British Rail, and Tyne and Wear PTE and all those concerned with the future operation of that railway will take careful note of what my hon. Friend said.
I therefore hope that the Houes will give this Bill a Second Reading and thus allow the Select Committee to examine the proposals with the benefit of expert evidence. I am sure that what my hon. Friends have said will be noted when that takes place.

8.14 p.m.

Mr. George Cunningham: As a number of my hon. Friends and others have asked me to respond at the end of the debate, may I briefly say that they will understand the difficulty which exists when an hon. Member is presenting a Private Bill to the House in responding to requests for specific assurances, particularly if they are new points? I must therefore tell my hon. Friend the Member for South Shields (Mr. Blenkinsop) that I cannot respond to him on the question of the Tyne and Wear system. I feel sure, however, that the kind of assurances he seeks could be pursued in correspondence after the Second Reading has been disposed of.
On the same ground it is difficult for me to respond exactly to the requests for assurances by some of my hon. Friends about the ferry. The difficulty is that British Rail is not directly represented in this House, but, by wisdom of Parliament, it will be directly represented in the Committee to which the Bill will be referred if it is given a Second Reading.

That gives the opportunity for local authorities directly to make their case as petitioners and for British Rail directly to reply.
The common law obligation according to advice given to British Rail is extremely onerous. The obligation almost certainly, among other things, includes an obligation to ferry those who wish to be ferried and are to pay the toll at any reasonable time. The Bill covers times which would not have been appropriate when the tunnel was not there. I hope that the points that I have made will be examined and I feel sure that the warnings sounded about what might happen when the Bill comes back from the Private Bill Committee have been well noted in the appropriate quarter.

Question put and agreed to.

Bill accordingly read a Second time and committed.

8.13 p.m.

Mr. Ivan Lawrence: I beg to move,
That it be an Instruction to the Committee on the Bill to leave out Clause 18.
I table this Instruction for three reasons—first, to draw the attention of the House to the existing powers of what is in effect a private police force; secondly, to raise the question whether this power to stop and search should be in the hands of what is in effect a private police force; and, thirdly, to take exception to a far-reaching and important proposal which, because of the obscurity of the drafting of the Bill, might have gone unnoticed.
The debating of the matter satisfies my first grievance. On my second reason, I am far from happy that such a power to stop and search should be vested in such a police force, because it is a power which is not generally enjoyed in this country and is wider than that which is generally given to the State police forces. I was impressed to some extent by the figures given by the hon. Member for Islington, South and Fins-bury (Mr. Cunningham) and I shall leave aside in this debate too declamatory or powerful a condemnation of that power. For the moment I shall reserve my position. I would prefer at this stage to concentrate my fire on that part of Clause 18 which would endorse Section 54(2) of the parent Act. It is that which gives to a prosecution by the British Transport


Police a totally unacceptable power which eats into one of the most fundamental rules which safeguard the liberty of the subject in Britain—the still widely supported, golden rule of the right to silence. I must frankly confess that I am one of those who believes that this right has been so eaten into by the ravages of time and expediency that we could perhaps by re-designing our approach to criminal justice give it a decent burial, in due course. Meanwhile, the right to silence remains a cherished principle but the Bill reduces that right. The House should be aware that this is happening and be given an opportunity to voice its disapproval if it does not wish it to happen. That has been discussed at some length by lawyers on this side of the House who have expressed considerable concern. If that were not so, we would not have sought to delay the Bill.

Clause 18 provides for the reactivation of Section 54 of the British Transport Commission Act 1949 and extends it to 1st January 1982. Section 54(2) of the British Transport Commission Act reads,
Every such person who shall be brought before any court of summary jurisdiction charged with having in his possession or conveying in any manner anything which may be reasonably suspected of being stolen or unlawfully obtained and who shall not give an account to the satisfaction of such court how he came by the same shall be guilty of an offence …".

The nub of the matter is that although our criminal law gives an accused person the right to remain silent at all times during the criminal process, this provision places the burden upon him of giving an explanation to the court how he came by the article which was in his possession. If the accused person remains silent and invokes the fundamental right which would apply in other circumstances, he will fail to give
an account to the satisfaction of such court
and will be guilty of an offence.

I shall now deal with some of the points which might be thought to limit the force of my objections. In promoting the Bill, the hon. Member did not allude to the argument that the Bill is limited in its effect to persons employed by the railway authority. It does not extend to railway passengers but can be used against persons employed on railway premises. My

answer to that argument is that employees are citizens like everyone else, and although they may be properly fettered by the rules of civil law governing their employment, they should be able to enjoy the same freedoms as everyone else. They should not have fewer rights under the criminal law than those who are not so employed.

We are talking about reducing the rights of many thousands of citizens employed by British Rail—not just those who walk about railway stations, but also those who work in hotels and other commercial premises covered by the British Transport Police. Although that point, therefore, may to some extent limit the effect of the powers sought, in my view it does not reduce the importance of these powers in any way.

There were one or two other perhaps less persuasive justifications advanced by the hon. Member. He said that the provision is one which the Transport Police have enjoyed since 1949, and implied that it is now too late to reverse it. My answer is that it is never too late to reassert a freedom which is properly one's own and which has been taken away without the guardians of that freedom noticing or caring. I do not know what happened when this matter was originally raised in 1949, but this is no reason why we should not show concern now for something that went too easily out of the window in 1949.

If the principle is one which is widely respected and ought to be jealously guarded, it is no credit to any legislature that it let it carelessly slip through its fingers, nor is it too late for a more alert legislature—as I hope this is today—to reclaim that which was wrongly lost.

Mr. Leslie Spriggs: The hon. Gentleman appears to be using the argument against the right of the British Transport Docks Board to use police for the purpose of protecting property. Is he not aware that the police employed by the British Transport Docks Board have had these powers for many years and that if it had not been for the engagement of these police, many millions of pounds worth of goods from ships unloading or loading would have been stolen? I think we ought to give credit to the British Transport Docks Board police for the good work they are doing.

Mr. Lawrence: I am grateful to the hon. Member for St. Helens (Mr. Spriggs), who seems to have walked into a debate on the wrong Bill. However, I take the point he makes, and I support his point about the Transport Police in whichever function they are operating. I would not seek at all, in anything I say, to derogate from the excellent job done by the Transport Police, but the lion. Gentleman would have difficulty, I think, in proving that these powers have been responsible for achieving anything in particular. Merely to cite figures of the number of prosecutions and convictions is not by itself proof that those figures result from the rather exceptional powers claimed in this legislation. However, I am dealing with the point that the hon. Member for Islington, South and Fins-bury has made—that it is a power which has been in its hands since 1949, and that it is now rather too late to take it away. My answer—

Mr. George Cunningham: I would never dream of stating a case on that basis, and I did not do so.

Mr. Lawrence: If the hon. Gentleman did not do so, I am afraid I misunderstood him. He made specific mention of the fact that it had been in existence in 1949. If I am tilting at a windmill by thinking he was advancing more in his argument than he was advancing, I cease tilting.
It is a power which has already been given to the police in the Police Courts (Metropolis) Act 1839, but I think that a distinction must be drawn between the powers which result from prosecutions by State police forces and the powers entrusted to what is in effect a private police force in its prosecutions.
I also draw a further distinction between the rights of the citizen which are surrendered to expediency after full and public debate on the Floor of the House, as in the Police Courts (Metropolis) Act, and the procedure of a Private Bill which would never have been publicly debated had I and other hon. Gentlemen not raised these matters.
Although not raised by the hon. Gentleman, the point has been raised that, although similar power exists in recent legislation—for example, the Port of London Police Authority has it, and the

Mersey Docks and Harbour Company received it in 1975—both pieces of legislation were Private Acts. They were never publicly debated and were both passed by negative resolution. In any event, carelessness on other occasions should not be used as an entrenched precedent for perpetuating the carelessness.
It is also argued—again not by the hon. Gentleman, who I expect was trying to be brief in the interests of saving the valuable time of the House, which I also have in mind—that this power is particularly useful in overcoming the problem of identification of pilfered goods and establishing the place from which they were removed. It is said also that this power acts as a deterrent, and that the deterrent effect is of greater importance than the number of convictions obtained.
My answer is that sheer expediency is seldom a good basis for depriving an individual citizen of fundamental rights. It would always be expedient for the prosecution not to have to bother to identify goods which it claims are stolen, and it is often difficult for such an identification to be made. Yet if we were to be asked to give the prosecution everywhere the right claimed for the British Transport Police—that it does not have to identify the loss—what would our answer be? Why should the Transport Police enjoy a privilege which is not enjoyed by the State police forces generally throughout the country?
There is no need at all, under the general law of theft, always to identify the exact loss, because the handler of stolen property may still be found guilty under the general rules of our criminal law, and particularly under the rule laid down in the case of Fuschillo. The circumstances of his possession of the goods may be sufficient to prove that the goods were stolen, and it is not necessary to have other evidence of theft. That being the fact, I cannot see that the proper application of the general rules of criminal law would be any less of a deterrent to the wrongdoer than the exceptional power which the promoters seek to retain.
I hope that I have dealt reasonably with the arguments advanced by the hon. Gentleman and those which have been advanced in the run-up to the debate by the promoters. Perhaps I might very


shortly just state the ground of my objection. The object of the clause is to make it easier for prosecutions brought by the British Transport Police to succeed. Because of that, the rights of the individual are diminished. It therefore makes it a little more likely that a person who is innocent of the offence of unlawful possession might be convicted. Magistrates' court justice—although it is usually in this country of a very high quality—is comparatively peremptory justice. The offenders are arrested during the night, or even in the early morning, and may be brought almost immediately before the court. The shock, the lack of legal advice, as sometimes happens, or perhaps the need for an interpreter, if a foreigner is involved, and any number of other factors may make it difficult for the accused to be fairly judged on his failure to give an explanation—a failure which, apart from this measure, would be his right. Because this provision is a substantial variation from a time-honoured principle which this House has always upheld—invariably, as far as I can follow, in public debate in regard to State police forces—I object to it.
I do not blame British Rail for trying to obtain this measure. It is obviously easier and simpler for it to have it. I have great respect for the Transport Police, having been with them on both sides in a number of cases in which I have had the honour to appear. But I do not see why they should have a wider power than most other State police forces have.
We have always been jealous to guard the rights of the individual against the State's police forces. How much greater must be our jealousy lest the rights given to private police forces be excessive! We would not dream of giving this power to prosecutions brought by a supermarket, Bovis, ICI or Lyons, all of which employ people who might perhaps be said in certain circumstances, when loss has been identified, to be suspected of pilfering. Why, then, should we give this power to the Transport Police?
Surely the Airport Police would have liked such powers, but they did not seek them in the Policing of Airports Act 1974, which we recently debated. Doubtless there are a number of other examples where the power would have been most

useful but was not even sought, let alone granted.
The House must be all the more careful when such a power is sought not by the process of public debate on a Public Bill but by the Private Bill procedure, lest in that way what remains of our freedoms disappears behind our very backs in the name of expediency.
A further point that needs to be mentioned is the way in which this important power is included in the Bill. It is not immediately obvious when one reads Clause 18 that it deprives a person who is charged under the provisions included therein of the right to silence. It is a matter of some good sense that legislation of this kind should be set out very much as the similar power of stop and search was set out in the Policing of Airports Act—fully, on the face of it, without legislation by reference, which in any circumstances must be deplored but particularly in Private Bills which do not normally receive the attention that Public Bills · receive here. I am not against the fullest reasonable powers being given to the police in their fight against crime, but I am not in favour of powers which are wider than the general powers accorded to the State's police forces.
In short, my objections are, first, that the Bill contains powers so important that they should be contained in public legislation, if at all; secondly, that this should not be a power which is vested in private police forces in any event; and, thirdly, that this should not be a power which is not clearly set out on the face of the legislation.
Now is the time to expunge the clause. If the matter is left to Committee, anything might happen. I should welcome any assurance the hon. Gentleman might care to give that the clause will be dropped, at any rate in so far as it relates to Section 54(2) of the British Transport Commission Act 1949. If I receive that assurance, or something like it, I am sure that my hon. Friends will not seek to divide the House on the matter.

8.33 p.m.

The Minister of State, Home Office (Mr. Alexander W. Lyon): My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) will


reply to the debate. Therefore, it may be for the convenience of the House if I indicate the Government's position now and, I hope, limit the amount of controversy that the discussion may create.
The hon. Member for Burton (Mr. Lawrence) has limited his criticism of the section in the main Act, the 1949 Act, to the second subsection. I think that he was wise to do so, although at the end he widened his attack to cover the general powers of the British Transport Police and whether they should have such powers under private legislation.
I think that anyone who considers the matter will agree that public corporations, because they have on their premises a considerable number of the public at any given time, are in rather a different situation from, say, Joe Lyon or ICI, which have mainly to supervise their own workpeople. It is that which gives any justification that there is for the provision of a separate police force for the British Transport Commission or any of the other public authorities.
That has been recognised by the House, and the powers have been voted, on many occasions. It would be wrong at this stage to reconsider that position. When we discussed the Policing of Airports Bill it was reconsidered in relation to one aspect of a public corporation, and in due course it may be necessary to reconsider it for the British Transport Police.
But that position has not arrived and therefore we have a police force which ought to have sufficient power to continue its operations properly. I suggest that that power must include the right to stop and search and, if need be, to arrest without warrant people who are acting in a way which leads to a reasonable suspicion that they have committed an arrestable offence as defined in the general law.
That power is no wider than the power conferred on an ordinary constable in a normal police force and I suggest that Section 54(1) is not an onerous extension of the power of the ordinary constable. But Section 54(2) is a rather surprising piece of legislation. I entirely agree with the hon. Member for Burton, and if it was the hon. and learned Member for Southport (Mr. Percival) who first noted this provision, we all owe him a debt. When I came to look at it I could not

understand how it ever got into the 1947 Act.
I am sure that my hon. Friend the Member for Islington, South and Fins-bury, whose interest in British Rail affairs I find a little curious but none the less revealing and who, as I know from his other activities, would be categorically against any such provision, will share my distaste for a provision which puts the burden on a defendant to show that he is not guilty of committing a serious criminal offence. I hope that on reflection British Rail will recognise that it is not necessary to have this power.
The very figures that the hon. Gentleman quoted indicated that. He quoted an all-over figure of about 300 people having been stopped and searched and about 260 having been charged with an offence against the existing substantive law of theft, and only seven having been convicted of this offence under Section 54(2). If it is needed for only seven offenders over the period that it has been in operation, I do not see that there is any real reason for it to continue. I am quite certain that the allegations could have been laid under the Theft Act, even in those seven cases. If the justification for those seven cases was that the evidence was not sufficiently strong to allege a charge of theft, that increases my disquiet about the existence of this section, because that suggests that it is used only on occasions when under the ordinary common law it would be quite inappropriate to charge anybody.
I suggest, therefore, that the hon. Member for Burton should withdraw his Instruction, because it would deprive British Rail of the power under Section 54(1), and when the Bill goes to Committee the Committee should note the strong criticism he has voiced about Section 54(2) and remove that subsection from the major Act, and perhaps reconsider whether in those circumstances it is necessary to have a time limit upon Section 54(1). I suspect that the time limit has been included in the past because of the wide nature of the power under Section 54(2) but, given that Section 54(1) is a fairly reasonable power, there does not seem to be any reason why there should be any limitation of five years for reconsideration by this House. If that is the only reason that British Rail had to come back to this House, it would


clearly be a ridiculous situation for it to propose an entire Bill just for the purpose of extending this power, which everybody will agree British Rail requires.
The Committee could look at Section 54 again and limit it to what is reasonable and then remove any time limit upon the power. I hope that in those circumstances it might be possible to reach all-round agreement. I hope that my original intervention, which seemed to irk my hon. Friend the Member for Islington, South and Finsbury into making castigatory remarks about the Home Office, does not cause him to look askance at my suggestion.
If we were a little delayed in reaching our destination it may have been because we were travelling by British Rail, but I assure him that we have given great consideration to the point and I have in my possession but one letter which British Rail has written to us on this matter. It received a reply to that letter saying that we were to take the action I have indicated—namely, not to oppose Section 54 (1) but probably to oppose Section 54 (2). If the hon. Member for Burton takes advice from the sponsors, I believe that he will find that I am not wrong, but if he wishes to intervene I will let him do so before my hon. Friend the Member for Islington, South and Fins-bury.

Mr. Ian Percival: Does the hon. Gentleman agree that his proposition should be carried one stage further? If Section 54(1) were to be retained and subsection (2) abandoned—a proposition with which we entirely agree—would not the better course be for Clause 18 to be replaced by a short clause explaining the position? Everybody would then see what the situation was. We should not be faced with the difficulty of having to get out several Acts to see what the clause means.

Mr. Lyon: It is probably better to leave that to the Committee. It is for the Committee to decide how to deal with the situation. Off the cuff, I do not dissent from what the hon. and learned Gentleman said. The 1949 Act is the major Act. To replace that in an amending measure would make the major Act look defective. It might be better to remove Clause 18 and to put in a new

clause which, in effect, amends Section 54 of the major Act. That would make clear what was intended.
I do not know whether my hon. Friend the Member for Islington, South and Finsbury wishes to intervene at this moment.

Mr. George Cunningham: My hon. Friend is asking for an undertaking from the sponsors of the Bill. Is he in a position to undertake on behalf of the Government that legislation containing provisions similar to, though not verbally identical with, Section 54(2) of the British Transport Commission Act, which place on the defendant an obligation to give an explanation, will be removed from the statute book in the same time scale?

Mr. Lyon: My hon. Friend has some degree of ire about this point. I cannot understand why. All we need to do is to ask the Committee to look at this point in Section 54 and to make the amendment therein. It is then done in this legislation. I do not understand why the Government should have to introduce legislation in their overcrowed timetable to remove this difficulty.

Mr. George Cunningham: I apologise to my hon. Friend for interrupting again. I have not made myself clear. Section 54(2) of the 1949 Act could be disposed of in Committee. However, if there is other public legislation similar in nature—and there is—will the Government give me the kind of assurance which they are asking the sponsors of the Bill to give tonight? Will they for their part in the same time scale remove similar provisions for which they have responsibility?

Mr. Lyon: That is a different point. If my hon. Friend is asking me to review the whole of the statute book, I should tell him that if this point arises in any other legislation for which I have any responsibility, steps will be taken to amend that legislation as soon as is reasonably practicable and as soon as the Lord President will allow me time to do so. After all, I am from the Department which my hon. Friend has been criticising.
However, I understand that there is no such provision anywhere else in the statute book. I say that with trepidation, because I know that if my hon. Friend says that there is, there must be somewhere. I should think that he probably


found it in Scottish law somewhere. If it exists, it ought not to exist. In so far as I am able to commit the Government—of which I may not be a member for much longer—if it lies within my power, I shall see that we get rid of that kind of provision.
I do not know of any other provision like this. It came as a shock when I found it. I gather that there may be such a provision in another piece of private legislation which will be coming up for discussion later in the week. I hope that it may be enough to circumvent discussion on that if I say that the Government will take the same view about this and that the Committee which considers that legislation might also consider this point. If I find the principle I have stated anywhere in public legislation, I am happy to give my hon. Friend the undertaking that we shall review it at the earliest possible moment.

8.46 p.m.

Mr. Norman Fowler: Whether the hon. Gentleman is a member of the Government after the next few days or not, one thing is certain—that after his remarks about travel on British Rail he will not be moved to the Ministry of Transport. There are basically three points on this Instruction—the power itself of stop and search; the second power in Section 54(2) of the 1949 Act, and the constitutional arrangement for a private public authority police force, the British Transport Police.
Regarding the "stop and search" powers, as the solicitors representing British Rail have made clear, the police have these powers to search employees or those employed on British Transport premises but not railway passengers. Nevertheless, my hon. Friend the Member for Burton (Mr. Lawrence) has made it clear that this is an important question. We do not give such powers lightly to any kind of body. Why are they necessary? This was the question posed by the hon. Member for St. Helens (Mr. Spriggs). The starting point, as the hon. Gentleman suggested, is to consider the losses for the organisations covered by the British Transport Police.
The position here is very serious. The latest figures show that in the last 12 months British Railways lost £1·5 million

in property stolen or obtained through fraud. The British Transport Docks Board lost £400,000 and the London Transport lost £260,000. For the first time in the history of these organisations the value of property lost exceeded the £2 million mark.
What are the biggest losses? Burglary losses amounted to £150,000; theft from the person, £180,000; theft from pockets, £200,000; theft of packages, £300,000; and theft of stores and equipment, £470,000. The cost of crime for British Rail and, indeed, for other organisations, is now at a record level. That must cause this House grave concern.
What is the position as far as the employees are concerned? Let us be absolutely clear. When we hear that firms are making losses through pilferage, the assumption is that this is done by outsiders, by shoplifters, and that is often true. But it is often ignored, and it must be recognised, that substantial losses also take place because of staff thefts or when staff co-operate with those outside the organisation. This is a fact of life. It happens in private industry and it happens in public industry. There is no distinction between the two.
This is one of the things which have happened, and it has substantially contributed to the losses I am talking about. I am informed that last year 1.700 employees of British Rail, the British Transport Docks Board and London Transport were prosecuted for criminal activities. The number of prosecutions of staff for theft and similar activities was 1,458.
Let us keep those prosecutions in proportion. In British Rail and its subsidiary companies there were 1,281 prosecutions in a labour force of 255,000; in London Transport there were 122 out of a labour force of 153,000; and in the British Transport Docks Board there were 26 prosecutions out of a labour force of 12,000. So dishonesty is not widespread through these organisations. A minority of employees commit crime, exactly on a par with similar organisations.
That being so, I should be reluctant to see the "stop and search" powers abandoned. It would not make sense when all the organisations concerned are facing record crime losses. Clearly, the


powers have a deterrent effect and it is in the interests of the customer that he should be protected from losses as much as possible. So although I understand the concern, I believe that on balance the power should remain.
What is much more open to question is the additional power which goes beyond "stop and search ". The Bill hardly refers to this. Clause 18 is hardly a clear guide. My hon. and learned Friend the Member for Southport (Mr. Percival) is to be congratulated on having drawn this clause to our attention. Hon. Members on both sides have complained before about unclear legislation, but legislation like this, with grave implications for the freedom of the individual, should be clearly set out. We should not be left with no other alternative but to wade through reams of paper back to the 1949 Act to understand what is proposed.
The proposal basically is that someone who is stopped and who will not give an account to the satisfaction of the court of how he came to possess certain property should be guilty of an offence. That is a wide power which seems to place the responsibility on the person stopped to establish his innocence rather than upon the police to prove his guilt. I think that we would all be worried by that kind of power. I hope, first, that the hon. Member for Islington, South and Finsbury (Mr. Cunningham) will say clearly whether the British Transport Police actually want that power, and, secondly, if they do, that he will place the arguments firmly before us.
That brings me to my third point, the question of control. As the hon. Member said, the British Transport Police, which is just over 2,000 strong, is one of the strongest police forces in the country. It costs £11 million a year to run. It is not a private police force but a public authority police force. The cost is borne by the British Railways Board with contributions from the London Transport Executive and the British Transport Docks Board. The police authority is the British Transport Police Committee and the responsible Department is not the Home Office but the Department of the Environment.
I have absolutely no criticism of the British Transport Police. My hon. Friend the member for Brentwood and Ongar (Mr. McCrindle) will be speaking

about their rôle later. But when we consider the powers that they will have, we should also consider whether the proper authority for this police force is the Department of the Environment. It is rather strange to see the Minister of State, Home Office answering questions on police powers while the Under-Secretary of State for the Environment is left to deal with the ferry from Tilbury.
I make absolutely no criticism of the Department of the Environment or the Under-Secretary, but would it not be better for the Home Office to have ultimate authority in this regard? In other words, while preserving the Transport Police intact, would it not be better if the police authority were the Home Office, which is of course the body with most practical experience of the police service?
I put this point for a number of reasons. First, although the Transport police force runs well, it may be that new conditions require fresh consideration. The terrorist threat, for example, is evident not only for airports, as we know, but in terms of public transport. That is a point which my hon. Friend the Member for Burton made. We have debated this connection previously on the policing of airports. I would simply put it tentatively to the Minister of State, Home Office that there might be a case for changing the status of the police here, as there was for changing the status of the police in the airport situation.

Mr. Lawrence: In my hon. Friend's view, does the Department of the Environment have any more control over the operation of the Transport Police within British Rail than the power to sack the Chairman of British Rail?

Mr. Fowler: That is probably a question that the hon. Member for Islington, South and Finsbury would prefer to answer, and to answer authoritatively, but I will seek to give my hon. Friend guidance. As I understand the situation, the police authority is made up from within the British transport organisations, including certain police members. Therefore, it operates in very much the same way as a police authority would operate in regard to any other local force, the difference being that the criteria and the ultimate authority rest with the Department of the Environment and not with the Home Office.
I am suggesting—a point with which I thought my hon. Friend was in agreement—that the Home Office, rather than the Department of the Environment, should take over the authority here. The change would mean that the British Transport Police would be subject, for example, to regular inspections by the Home Office inspectorate. It would mean that regular police from other forces could be seconded for periods of service to the British Transport Police and that the policemen themselves would serve under the Home Office conditions laid down for police throughout the country.

Mr. R. A. McCrindle: Is my hon. Friend aware that the British Transport Police have voluntarily accepted the disciplinary code imposed upon the civil police under the Police Act?

Mr. Fowler: I am aware of that and also of the fact that in a number of cases in the past 12 months they have had inspections by the Police Inspectorate.
That brings me to my second point. It seems to me that the requirements and indeed the custom of the British Transport Police would make a transition of the kind I am putting forward not very difficult to put into effect. The requirements of the regular police and of the British Transport Police, such as height, education and age, are very similar, so I see no great difficulty there.
Thirdly, a change of this kind might mean rather more public accountability for the British Transport Police. It could be open to rather more public scrutiny than at present. I understand the Transport Police do not publish an annual report, which has been a requirement of normal police forces for many years. That kind of accountability and responsibility to the public is a very good thing.
I put forward the idea tentatively. I have no criticism of the Transport Police. Everything I have heard about them leads mc to the conclusion that it is a fine force which should be preserved. However, I wonder whether such a system, with the Home Office as the police authority rather than the Department of the Environment, might be an improvement for both the police and the public.

9.1 p.m.

Mr. A. J. Beith: I am very glad to follow the hon. Mem-

ber for Sutton Coldfield (Mr. Fowler) and to express pleasure in the fact that, although he is rather confused about the present situation, he has come round to the view that I have held for some time about the lack of public accountability in the Transport Police.
The hon. Member for Burton (Mr. Lawrence) had it almost exactly right, though he may have understated the situation slightly. The principal power exercised by the Secretary of State for the Environment in respect of the British Transport Police is that of sacking the Chairman of British Rail. It is from the general responsibilities arising from this specific power that any responsibility for the police arises. For that reason, neither he nor the Home Secretary answers Questions about the force in the House. The hon. Member for Sutton Coldfield seeks to give the Home Office powers which the Department of Environment does not exercise but the case for which must be considered.
It is this constitutional position of the British Transport Police that I wish to consider. I do not want to add to the arguments on the "stop and search" powers or the proof and presumption of innocence which have been advanced so well by other hon. Members, not least the Minister of State. I share those views and I hope they have been noted by the promoters of the Bill. There is a very good case for a Public Bill to cover the provision of forces such as this and their powers, for example, to stop and search.
The case for public accountability and the establishment in general legislation of the discipline and command structure of such police forces does not rest, as the Minister of State seemed to rest, purely on emergencies, such as that which arose in the case of the Airport Police. The Government rightly felt that special action should be taken to deal with the problem of airport policing, in the light of the terrorist threat. The action chosen was not simply to increase the powers of the Department in relation to the forces, but to make them part of the existing police forces—the Metropolitan Police in the case of the London airports and other local authority forces elsewhere. I supported that Act and agree with its principle.
It is not simply a question of the special need which could arise and which would require special provision in relation to such forces, nor is it necessarily the case that these forces should be part of the Metropolitan Police or put into that force's relationship with the Home Office. A case can be made for a rather lower level of public accountability without changing the fundamentally separate existence of the Transport Police.
But Government legislation would be necessary. The Home Office has shied away from the issue for too long and left the future of employers' police forces—they prefer to be known by that name rather than private police forces—to be settled in private legislation without taking any initiative.
In many cases, the situation is unclear and worrying. It is not clear why a member of the Metropolitan Police could not prosecute a member of the Transport Police for impersonating a police officer. The Home Office has rules and regulations determining who is entitled to wear a uniform which is almost identical to that of a police officer. Employers' forces are able to wear these uniforms by long-standing convention but it is not clear by what legal provision. The Home Office often exercises no prerogative over who should be allowed to wear uniforms. There is a whole area of police activity not subject to the kind of constraints which many of us would like to see.
The Government had their chance to deal with employers' police forces run by public corporations when they introduced recently the Atomic Energy Authority (Special Constables) Bill. They could have made that Bill the vehicle for procedures to deal with a whole range of police forces. It was not confined to the arming of the Atomic Energy Authority police, but covered the command and discipline of the force. I am pleased that the Minister of State is present today, because no Home Office Minister was here when we discussed the Atomic Energy Authority (Special Constables) Bill. Many issues about the relationship of an employers' police force and the civil police were raised, but no Home Office Minister was here to reply.
There is a case for separate police forces run by public corporations. That case rests on the need of those corporations to put greater resources into policing

than would be possible if the work were done by the regular police. That is not the only way of doing it. It can be done by contractual arrangements with public police forces.
I can see the case for the higher degree of specialised police attention which can be given by a force whose specific purpose is to protect public installations and property, property which is put into the charge of that body when it is being transported, and members of the public who use the premises. But we must ensure that any such force, behaving just as a police force in many ways, and seen by the public as a police force, is subject to constraints, discipline and accountability comparable to those imposed on public police forces.
That is usually the wish of the members of the forces, and I know that the hon. Member for Brentwood and Ongar (Mr. McCrindle), who is hoping to catch your eye, Mr. Deputy Speaker, will speak on behalf of the British Transport police. Not only do members of such forces wish to be treated in the same way as members of the public police forces, but they want to be subject to the same constraints and disciplines and not to be thought of as second-class police. Not all police authorities take the view but the British Transport Police Committee does.
One aspect in which these forces should be made directly comparable to public police forces is in respect of complaints by the public. I tabled an Instruction on that subject which I was happy to withdraw on the basis of a clear undertaking from the promoters of the Bill. The possibility of complaints by the public—in which I include employees of British Rail—is just as great, particularly in relation to the "stop and search" powers, as it is in relation to the regular police forces.
A few weeks ago I was sitting in a train in Liverpool Street Station waiting to go to Cambridge. The train did not go to Cambridge on that day or the next day, because an industrial dispute arose over the activity of the British Transport Police in relation to the searching of a British Rail employee in Liverpool Street Station. The dispute became a major dispute and it disrupted the services for two days. Problems arise, and it is in the interests of the employees, and members of the public, other than


employees, who come into contact with these police forces that they should have similar opportunities to register complaints and to have them dealt with as they would have with complaints against the public police forces.

Mr. Alexander W. Lyon: Does not the hon. Gentleman see a slight difficulty, if these police forces are taken into the control of the Home Office and equated with the civilian police, in dealing with that kind of problem? Perhaps the hon. Gentleman will reflect upon that when he comes to his general principle, because it is one of the major difficulties.

Mr. Beith: That is why I have argued that there is scope for a separate police force with specialised responsibilities. But every police force finds itself in situations which give rise to particular difficulties, not least industrial disputes. The regular police forces have to face these problems. They are engaged in police activities in installations as diverse as the House of Commons and the Lords cricket ground. In all places they come across special difficulties. That does not preclude the Home Office from having a high degree of accountability for the activities of the Metropolitan Police, and a range of responsibilities for provincial police forces that are wider than any that the Department of the Environment has for the British Transport Police.
The British Transport Police have said quite clearly through the promoters of the Bill that their policy is to apply by analogy the complaints procedure applicable to the civil forces. They propose to adopt the procedure that is to be implemented when the Police Bill is enacted. The promoters are informed that the Police Committee has argreed, and that the Department of the Environment and the Home Office have been informed, that the force will participate in the proposed scheme under the enabling powers in Clause 6. Whether he likes it or not, the Minister of State will find himself exercising some responsibilities in this regard.

Mr. Lawrence: If he is still on the Front Bench.

Mr. Beith: Indeed. The hon. Gentleman may well find at a later stage in the Police Bill's passage that the House

will seek to strengthen its powers by making them mandatory. However, in the case of the British Transport Police that course will not be necessary. The reliance that can be placed on their assurance led me to withdraw my Instruction. I was assured that they will follow the same complaints procedure as the civilian forces will adopt when the Police Bill becomes law.
There are other areas in which it is right that the British Transport Police and other public police forces should be the subject of procedures that are seen by the House to be close to, if not identical to, those to which our public police forces are subject.
It makes no sense to the public, or to members of police forces, that the categories should be different. It makes no sense to give comparable powers if the disciplines and constraints are to be different. I look to the Minister of State to take a much more welcoming approach to those who employ police forces, such as the British Transport Police, who seem of their own volition to want to embrace the attitude that I have just described. They are prepared to take a stricter and firmer line with those forces which are content to enjoy the quiet isolation which is provided by private legislation, and are content to be free of constraints which most of their members would be prepared to accept and which every regular policeman recognises are part of his job.
That is the basis on which the Government should deal with matters of this sort by public legislation. I do not feel that it is right to visit the failings of the Government on the British Railways Board. For that reason I do not wish to oppose its attempt to continue provision for the British Transport Police under private legislation, although I do not believe that it should have to adopt such a course.

9.17 p.m.

Mr. R. A. McCrindle: Although it is hardly necessary for me to declare my interest, I am the parliamentary consultant to the British Transport Police Federation.
I am pleased to see sitting on the Government Front Bench the Under-Secretary of State for the Environment, the hon. Member for Manchester, Gorton (Mr. Marks), and the Minister of State, Home


Office, if the debate has done nothing else, it has flushed out the Minister of State from the inner caverns of the Home Office, forcing him against his own wishes, I suspect, to enter the Chamber.

Mr. Alexander W. Lyon: Hear, hear.

Mr. McCrindle: Before I have finished the hon. Gentleman will really be saying "Hear, hear". He has had to listen to our submissions about a police force that is of extreme importance, and especially at present.
I express my gratitude to my hon. Friend the Member for Burton (Mr. Lawrence). I welcome the fact that he has felt moved to bring to the attention of the House a matter of considerable importance. Although I shall be taking a rather different line, I understand the arguments that he adduced. As a parliamentarian, as a citizen, and as someone who has great affection for and attachment to the British Transport Police, I well understand my hon. Friend's arguments.
I tend to part company with my hon. Friend the Member for Burton when he mentions private police forces. Certainly a private police force, as I interpret it, is very different from the British Transport Police. If private police forces were to have powers such as those we are discussing this evening, powers which we are suggesting are too extreme even for the British Transport Police, I believe that the House would have a great deal to concern itself about.
I thought that to some extent my hon. Friend the Member for Burton, as is not surprising, took a fairly legalistic attitude to this question. With respect to my hon. Friend, I hope that my comments will be on a much more practical level, since I seek to represent those who have the day-to-day task of policing our transport services.
In regard to a matter that is slightly outside Clause 18, may I ask which Department of State will have the responsibility for the British Transport Police? Will it be the Department of the Environment, for no better reason than that British Rail is the responsibility of that Department, or the Home Office, for the good reason that we are here discussing a police force?
I hope that the Minister of State did not say what I swear I heard him say from a sedentary position—namely, that the British Transport Police were second-class policemen. I think that he indicated that as an aside to his hon. Friend the Under-Secretary of State for the Environment during the remarks of the hon. Member for Berwick-upon-Tweed (Mr. Beith). I hope that the Minister will recognise that considerable responsibility rests upon him to eliminate any such impression that might go out from this House. Indeed, if he wishes to alter that statement, I am prepared to give way to allow him to do so. As he does not intend to do so, perhaps I can go on to say that he cannot brush aside the whole question of the responsibility of his Department for police forces of many and varied types. Although I do not wish to suggest that willy-nilly we can opt for control by the Home Office over the British Transport Police, it is undoubtedly a matter to which this House must turn its attention.
In past years in such matters as the voluntary acceptance of a disciplinary code there was a demand that legislation affecting the police should be extended to the British Transport Police. Indeed, the Transport Police recognise their great responsibility as a police force. In those circumstances we would be pursuing an entirely wrong line of approach if we were to dismiss the idea of some sort of attachment to the Home Office—given the fact that there is specialisation among the British Transport Police and the fact that at some time the Home Office might be required to take responsibility for that force. It is certainly true that the British Transport Police are anxious to be seen as thoroughly responsible people. However, they wish to ask for no special consideration—certainly for no more consideration than is extended to other policemen.

Clause 18 will provide a good deal of difficulty if the course suggested by my hon. Friend the Member for Burton is pursued. British Transport Police feel that if their powers are taken away, they will be naked in the fight against the rising tide of crime. They also feel that if their powers are removed, it could be seen as a victory for the criminal.

The power that we are discussing was introduced at the end of the war. It is no new thing. The power has simply been re-enacted on a number of occasions since the war. It was introduced then because it was thought necessary to deal with an upsurge of crime. That upsurge of crime was assumed to flow from the conditions of a war. It was hoped that it would recede. It was hoped, in other words, that it would be a temporary measure.

The trouble with temporary measures is that it is often not wise to withdraw them. I can only say that now, least of all, is it wise, without very careful thought, for the House to withdraw the powers that have been extended to the British Transport Police over this period.

The pattern of crime on the railways reflects the standards of society in general. I am sorry to say that in 1976 there is no indication that the crime to which the country is subjected is on the wane. The reason for the opposition to these powers is partly the belief that public general legislation is more appropriate for their enactment. I do not quarrel with that. There is a strong argument for saying that a public Bill would be a more appropriate vehicle. Whether in retrospect the Police Bill, albeit dealing with another and quite specific matter, may well be seen as the public legislative vehicle for having introduced this position I shall leave for the consideration of the sponsor of the Bill. However, the fact is that although the British Transport Police would go along with that reasoning, we do not believe that to await that Bill, possibly with an interregnum with powers withdrawn, would be at all in the interests of the public or the British Transport Police.

Detection of theft from railway premises is an acutely difficult exercise. It is difficult partly because of the nature of the premises—a wide rambling area with easy access—and partly because not only is there freedom of access, but the methods of exit are numerous at the larger termini.

It has long been recognised by Parliament—and it is here suggested that the power should be re-enacted this evening—that in the light of these rather special circumstances these powers of the British Transport Police were justified. The

powers of search, which are at the heart of what we are considering, have led to convictions for theft of 267 persons in 1975 out of 311 detained. If the powers had been taken away, few of those would have been detected. I am bound to ask whether this is the appropriate time to run the risk, no matter how marginal it may be, of seeming to give the criminal a bonus. The value of property stolen from British Rail premises has already been given at over £2 million a year for the last two years. To use an Americanism, that is not chicken feed.

My hon. Friend's other objection is that the onus of proof is placed on a defendant and not upon the prosecution. The fact is, however, that the Theft Act 1968 puts the onus of proof on the prosecution, and British Transport Police, having searched and arrested, nearly always prosecute under the Theft Act. Therefore, in this fairly narrow section of our discussions perhaps my hon. Friend will conclude that we are to some extent taking a sledgehammer to crack a nut.

British Transport Police are waging a battle against crime, and I believe that to withdraw the powers that have long been in their possession would have an effect on their morale at the very time that they are engaged in a fight against bombers, vandals, muggers and football hooligans.

Mr. Percival: Section 54(1) gives powers; Section 54(2) does not. Section 54 creates a special offence in respect of which a burden is cast upon the person accused of proving his innocence. Getting rid of subsection (2), therefore, would not deprive the police of any powers. Does my hon. Friend therefore object to subsection (2) going?

Mr. McCrindle: I was about to separate my attitudes to subsection (1) and (2). A great deal of what I was saying related to withdrawing powers under subsection (1). To that extent I think that my hon. Friends go along with me. Subsection (2) presents a much more difficult case to justify. I have no more wish than any other hon. Member to take away any of the freedoms or liberties which our subjects enjoy. However, if the powers in subsection (2) are to be withdrawn, rightly or wrongly the British Transport Police will feel, having to view the matter from a practical point of view


rather than from the slightly elevated approaches of principle, that they will be denuded of powers that in the past have proved necessary.
I am not suggesting that that is the beginning and the end of the story. I am simply saying that the powers under subsection (1) are essential and that if the powers under subsection (2) are removed, the British Transport Police will feel denuded.

Mr. Lawrence: If the British Transport Police feel that it is necessary for them to have these powers, why has no application been made in any sort of legislation for the Metropolitan Police or any of the more general State police forces to seek these powers?

Mr. McCrindle: I thought that I had touched upon that point when I was referring to the specific type of crime with which the British Transport Police are confronted. The British Transport Police feel that, because of the type of crime and the type of premises upon which those crimes are committed, to take away the powers in question would largely undermine the morale of the force.
The House should think very carefully and very long before doing that, because the type of crime that is being committed on British Transport premises appears regrettably to be on the increase. While it may be the wish of the House that these powers should be withdrawn, I hope that the House will not do that before thinking long and hard about the effects on the morale of the police.

9.28 p.m.

Mr. Ted Leadbitter: I came to the House to speak because I was concerned about these police powers, as I was in a previous debate with the hon. Member for Berwick-upon-Tweed (Mr. Beith) in connection with the powers of the Atomic Energy Authority constabulary in the Authority's installations. Basically we are concerned about the coordination of police activities and the structure of civil police authorities, and we have found that there are areas where co-ordination might be lacking.
This is a matter on which the layman is right to expect of the House of Commons at least some clarification of how the average citizen will adapt himself to the different types of police he may meet

in the course of his everyday work and leisure. Care must be taken in connection with the Bill about the kind of cooperation required between different police authorities in order that the functions of the different types of police can be seen to be working consistently and in a manner which the citizen may question.
When ordinary men and women are approached by a policeman who has a reason to suspect them, certain rules, known as the Judges' Rules, apply. Under these rules, although one would hope that the persons approached would adopt an attitude which would facilitate the police inquiry, they need not put themselves in peril without the advice of a solicitor. This applies especially if they agree to go to a police station.
Not many weeks ago, the hon. Member for Berwick-upon-Tweed and I, together with other hon. Members, expressed some concern about the Atomic Energy Authority constabulary having freedom to work outside the curtilages of the installations of the Authority and, indeed, to go beyond 15 miles in, I believe, armed pursuit of a person under suspicion. In considering legislation of this kind, hon. Members ought to ask what is meant by some of the words. For instance, what is meant by "suspicion"? What is meant by "reasonable suspicion"? What is meant by the powers of the civil police, as we understand them to be, in relation to the new kinds of powers possessed by the United Kingdom Atomic Energy Authority constabulary and the powers sought in the Bill?
We have one objective in common. That is to have police co-ordination and surveillance which is effective in order to control violence, in order to deal with theft, in order to keep the community confident that there is a proper system to supply the infrastructure of law and order. That is taken for granted. But here in the Bill, albeit we are asking for a renewal of powers which aleady exist, we nevertheless have to ask whether they work sufficiently well to satisfy us that they should be renewed within the terms of a Private Bill.
One of the difficulties with a Private Bill is that a Member of the House of Commons can have a surfeit of information from the promoters on the one hand


and, on the other, a lack of information from the people who may well be affected by the Bill but who are not aware that it is coming before the House of Commons. This places a Member in great difficulty.
I hope that we can find common ground and general agreement as to how we should deal with breaches of the law. In view of the difficulty I have just mentioned, hon. Members ought to take great care when dealing with matters such as this.
I agree that there is a need to maintain several specialised police forces to keep the peace, to prevent breaches of the law and to deal with law breakers. I agree that they need to support the principal police forces.
I ask the House to support the Bill, because experience shows that there is just cause for Clause 18, There is a need to co-ordinate the functions of the several police forces in their different duties within the community in its pursuit of leisure and at work places, in such a way as to diminish the anxieties of hon. Members.

9.36 p.m.

Mr. Leslie Spriggs: I understand that there are a few minutes to spare and I should like to bring a breath of fresh air from the docks. I have had much experience of working with the British Transport Docks Police. From the experience I have gained over many years of working in dockland I believe that it is essential that the police employed by the Docks Board see that hon. Members give them the support which they require. It would be dangerous at present to weaken their powers.
Mention has been made of £2 million worth of valuable goods being pilfered from the various sectors of publicly owned transport undertakings. I assure the House that the figures are correct and that for many years on average about £2 million worth of goods have been lost through pilferage in public sector transport undertakings, including road haulage.
One hon. Member referred to the British Transport Docks Police taking cases to court. He criticised the use of the powers which give those police the right to stop, search and arrest. It is

necessary to give some credit to our magistrates. Members of the British Transport Docks Police, like the officers of any other police force, are duty-bound to put evidence before the courts if they believe they have a case for prosecution. I have seen the British Transport Docks Police bring quite a number of cases before the magistrates. When their evidence has been weak, as it has been from time to time, or when the court has found there to be a doubt, the defendant has always been given the benefit of that doubt.
These men at times work in dangerous circumstances in dockland. Before we go any further, before we do untold damage to the prestige and safety of the British Transport Docks Police, we should take the matter into Committee and discuss it with the promoters of the Bill to see what they think about the removal of any of the clauses. We should discuss the matter in Committee with the British Transport Docks Police and their legal representatives.

9.41 p.m.

Mr. George Cunningham: I think that all hon. Members who have taken part in this second half of the debate on the proposed Instruction to the Committee will agree that, perhaps surprisingly, it has been a rare and useful opportunity to have a good discussion about the British Transport Police and the non-State police—if that expression should be used, although it should not—and the legislation that applies to them. Perhaps one lesson that should come out of the debate is that the House does not have enough opportunities to address itself to such subjects, which arise only as a by-product of legislation that needs to go through the House.
In opening the Second Reading debate I was presenting in the normal fashion the views of the British Railways Board in support of the Bill. As far as I am able to do so, I shall now do the same with respect to this specific matter, but I think that the House will understand that in endeavouring to respond to specific points, raised without notice in the course of the debate, I cannot be taken necessarily to represent the views of the Board on any particular point that I mention. To a great extent, therefore, I am expressing my personal views.
I am glad that the hon. Member for Brentwood and Ongar (Mr. McCrindle) was able from his special position to express the interests of the British Transport Police. We all benefit from their protection both as to person and property, and it is right that we should pay tribute to the benefit that we obtain from their services. In very difficult circumstances, they do a very good job.
It should be said right away that it is the view of the British Railways Board that the powers in Section 54(1) and 54(2) of the British Transport Commission Act 1949 are desirable and needed and should be extended when they would otherwise expire on 31st December next. The British Railways Board would not be putting this Bill in this form to the House if that were not its considered view, and the House should not, therefore, lightly dismiss the view of the public authority which is responsible for running British Transport Police.
I was glad that the hon. Member for Berwick-upon-Tweed (Mr. Beith) noted publicly in the House that the British Railways Board had given an assurance with regard to complaints procedure in relation to British Transport Police. I am glad that he acknowledged that this was a very forthcoming assurance and that to a certain extent now the ball lies in the Government's court to take that matter further.
I believe that we were all grateful to the hon. Member for Burton (Mr. Lawrence) for raising what no one can deny is a very important matter of public policy, one touching intimately the rights of the citizen as regards arrest and trial and evidence once he gets into court. I hope, however, that he will be prepared to withdraw his motion for an Instruction. I hope that he recognises that this is a matter which can best be dealt with by the House as the authority for public legislation and by the Government as the principal initiating body for legislation. They could take on board the question of private legislation and public legislation on such matters so that in the proper context of a Public Bill this problem can be considered in a Standing Committee or can be debated on the Floor of the House.
It does not seem to me appropriate that powers which have existed for a very

long time, and which have been thought, rightly or wrongly—probably rightly—to be desirable, on many separate occasions in the last 20 years, should be terminated in the process of a Private Bill Committee. Such a Committee is excellent for looking at whether a ferry should continue or a level crossing should be terminated, for example, but it is not an appropriate place in which to decide whether this kind of power should be terminated. That is a function for the House of Commons as a whole, in the course of its normal work on public legislation. I repeat, British Rail is doing no more than its plain duty in bringing forward a clause in its Private Bill to extend the period of application of the powers which Parliament has in the past conferred upon it.

Mr. Leadbitter: I support my hon. Friend. I want to stress that there is no difference between us. But to enhance co-ordination and the protection of the individual, and to ensure that he knows what to do in any circumstances on being approached by any police officer—civil, Transport, United Kingdom Atomic Energy or others—would it not be preferable if a Private Bill were strengthened in this regard by Government legislation?

Mr. Cunningham: As a Member of the House I entirely agree with that proposition but it is not within the powers of British Rail to initiate public legislation. It can initiate only a Private Bill. It can propose only that the powers conferred on it should be continued. That is exactly what British Rail is doing. If the House is saying that it ought to have been arranged differently, then the House, and in particular the relevant Departments of State, should have got round to doing something about it before now.

Mr. Alexander W. Lyon: I understand my hon. Friend's difficulty. As the sponsor of a Bill put forward by an external body, he cannot take instructions quickly. However, he must not overstrain his case. We are talking about a section in an Act of Parliament which was a Private Bill put forward by a private body. It is now being amended by a private body in the sense that there is a continuation clause. All that the private body needs to do in Committee, if it is persuaded by the overwhelming argument in the House, is to say that it accepts the arguments put


forward and is prepared for Section 54(2) to be removed. It does not need the Government to intervene at all.

Mr. Cunningham: With respect, such powers as are being objected to, particularly in Section 54, are not unique to Section 54. I agree with those who suggest that this ought to be looked at on a broader basis. Clause 18 will automatically be looked at in Committee. There is no need for an assurance from me to that effect.

Mr. Lawrence: I think that the hon. Gentleman might be assisted if I let him know the attitude of my hon. Friends. I appreciate his difficulty in not being able to give undertakings. I accept the indication given by the Minister of State about the Government's attitude. Without going into the wider aspects of the principles involved in other legislation, it seems that the proper place to consider the issues which have been raised tonight is in Committee. I am sure that the Committee will be well seized of the strength of opinion on both sides of the House on this point. Therefore, I think that the matter is best left for the Committee to decide. I shall not invite my hon. Friends to divide the House on this matter. Therefore, in due course I shall seek to ask leave to withdraw the motion for an Instruction.

Mr. Cunningham: I am grateful to the hon. Gentleman for that intervention. The Committee, like any other Committee, is bound to consider the proceedings on Second Reading and to take due account of them. Indeed, it is bound to take account of this part of the debate when it considers Clause 18.
British Rail is doing no more than its plain duty in proposing this clause. I stress again that the approval of the Department of the Environment is required for British Rail to bring forward the Bill. But, in seeking that approval, an indication was given that this clause would be in the Bill.
Reference has been made to the British Transport Police being a private police force. I take exception to that description. It should be remembered that British Transport Police is not unique. It may be the biggest such police force in the country, but there are others.

For example, at the opposite extreme, also coming under the Department of the Environment, the Royal Parks Police used to be called park keepers. They are now called constables, but they always had police functions.
The hon. Member for Burton in some parts of his speech confused the issue whether a person needs to make a statement to the police and in court. In case there is confusion—not on the hon Gentleman's part, I accept—the obligation under Section 54(2) of the 1949 Act is to provide a satisfactory explanation to the court. There is no legal obligation to provide an explanation to the police.
I suppose that this whole matter turns on the right of silence in court. To hear some of the interventions in the debate one might think that the right of silence in court had never been questioned. It has, of course, been severely questioned by the Criminal Law Revision Committee. No decisions have been taken and it is perhaps unlikely that they ever will be taken along the lines suggested by the Criminal Law Revision Committee.
It is not quite such an unheard-of notion as some hon. Members have suggested. I hinted to my hon. Friend that if he wants to do something about this kind of provision in the law, he might have a look at Section 24 of the Police Courts (Metropolis) Act of 1839 which reads as follows:
Every person who shall be brought before any of the said magistrates charged with having in his possession or conveying in any manner anything which may be reasonably suspected of being stolen or unlawfully obtained, and who shall not give an account to the satisfaction of such magistrate how he came by the same, shall be deemed guilty of a misdemeanour.
That wording is not exactly the same as the 1949 Act, but it is essentially the same. That is why I referred to the 1839 Act as being the kind of legislation upon which the drafting of the 1949 Act was based. That is why I think the Home Office has a responsibility, if it wants to delete this kind of provision from private legislation, to put its own garden in order, at least at the same time and preferably first.
I should say in fairness to British Rail that notification of this clause was provided not only in the normal way to the Department of Environment, but to


the Home Office as long ago as last July. In October the Home Office had to be reminded that it had not replied, and there was a further letter on 3rd February. There were three letters from British Rail to the Home Office about this clause. It was only after those three letters that there was a reply dated last Friday 2nd April from the Home Office, the letter to which my hon. Friend the Minister of State referred.
If I have been rather sharp in my references to the Home Office in the course of this debate, that will perhaps explain why. My hon. Friend should look at what has happened, or has not happened, in the Home Office over the last few months and ensure that a great public corporation like British Rail is not treated in that way again when dealing with such an important matter.
My hon. Friend suggested that it might be possible in Committee to knock out the temporary nature of these powers—of Section 54(1) at least—and to make them permanent. I am advised that that would not be possible in a Private Bill in Committee, because it would be extending the scope of the Bill. On the basis that the Committee is bound to look at the deliberations in this debate, I hope that the House will now agree to allow the hon. Member for Burton to withdraw his Instruction.

Mr. Lawrence: In view of what the hon. Gentleman has said, I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn

BUDGET RESOLUTIONS AND ECONOMIC SITUATION

AMENDMENT OF THE LAW

The House resumed the postponed Proceeding on the Question,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but, without prejudice to any authorisation by virtue of any resolution relating to value added tax, this Resolution does not extend to the making of amendments with respect to that tax so as to provide—

(a) for zero-rating or exempting any supply;
(b) for refunding any amount of tax;
(c) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or
(d) for any relief other than relief applicable to goods of whatever description or services of whatever description.—[Mr. Healey.]

Question again proposed.

Debate adjourned.—[Mr. Bates.]

Debate to be resumed tomorrow.

BUSINESS OF THE HOUSE

Ordered,
That the Motion relating to Pensions may be proceeded with at this day's Sitting, though opposed, until half-past Eleven o'clock.—[Mr. Bates.]

PENSION SCHEMES

10.1 p.m.

Mr. Kenneth Clarke: I beg to move,
That this House takes note of the Occupational Pension Schemes (Preservation of Benefit) Amendment Regulations 1976 (S.I., 1976, No. 140), the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976 (S.I., 1976, No. 142), the Contracted-out Employment (Notifications, Premium Payment and Miscellaneous Provisions) Regulations 1976 (S.I., 1976, No. 143) and the Social Security Pensions Act 1975 (Commencement No. 5) Order 1976 (S.I., 1976, No. 141).
I should like to begin by paying tribute to the Minister of State, Mr. Brian O'Malley, whose unfortunate death yesterday evening undoubtedly casts a considerable cloud over tonight's debate. I know that the Secretary of State, as one of his closest colleagues, is particularly distressed by his death and will no doubt pay a tribute in her own way. I am sure that, throughout the House, her sense of shock is shared.
We all realise that we have lost a considerable colleague of great ability and great popularity. We on this side learned to respect his unrivalled expertise on this subject and the great deal of work that he did in the Act which lies behind these Statutory Instruments. It is no disrespect to the right hon. Lady to say that, in all the detailed work, Mr. O'Malley was the principal architect of the 1975 Act.
If I might add a personal note, as one who served on a number of Standing Committees with Mr. O'Malley and against him on this subject, I learned to have not only a considerable respect for his expertise and skill, but also a considerable regard for his straightforwardness and his honesty and the way in which one could rely on what he said, both within the Chamber and outside.
The three sets of Regulations arise out of the 1975 Social Security Pensions Act.

There is also an Order on a slightly different subject-matter. The three sets of Regulations deal with arrangements to be made for the payment of premia and other matters by those with contracted-out schemes, with equal access to occupational pensions schemes for women, and with the commencement Order which emphasises that the commencement date for the new scheme will be 6th April 1978.
It is therefore appropriate, when three of the most important Orders to come before the House under that legislation are being debated, to consider how we are getting on with putting into practice that important Act which in the end was the subject of all-party agreement. What is the likely timetable for implementation of the new scheme now that we have agreed it? Do we seem likely to have a healthy level of contracting out of the new scheme and a worthwhile size of occupational pension sector in view of the arrangements set out in the Regulations for premia payments and other things? Shall we extend the pension of occupational pensions to those groups who in the past have been least well served by them—broadly, women and manual workers?
This is an appropriate time to consider those questions because it is a key time for decision-making by employers and trade unions about whether existing occupational schemes should be contracted out of the new two-tier State scheme when it comes into effect in 1978. In making their decisions, employers and unions will have regard to the subject matter of these Regulations.
The sets of regulations cover ground familiar to us all. No. 143, on premia and other things, contains the Government's most important concession, on the question of the previously open-ended commitment which might have rested on pensions funds to revalue the preserved pension rights of early leavers from employment.
The Government in the Regulations for the calculation of the premia have accepted the case put forward by the industry for some time and by the Opposition during the passage of the Bill. It is another concession won in this field, so that the terms for contracting out of the new State Scheme and therefore for the


survival of the best of occupational funded pension schemes have been made more attractive. It is now possible to limit that commitment to 8½ per cent., with no payment of any premium to the Government if this method is the one preferred by a pension fund. We pressed very much for this kind of provision when the Bill was going through. We thought that 8 per cent. would be the right figure as a fixed commitment to revalue these preserved rights, but half a per cent. will not cause a battle. We accept the advice of the Government Actuary.
Then we have the Regulations on equal access, of which the right hon. Lady is proud. These make it clear that there should be no distinction in respect of the entry into occupational pension schemes between male and female employees of a particular employer. That is taking further the great opening for women in pensions which the 1973 Act represented when it went on the statute book. That is a welcome provision.
Finally, there is the Commencement Order bringing into force important provisions on 6th April 1978.
I hope that hon. Members on both sides of the House remain agreed on the aims which this legislation is trying to achieve as we see the details unfolding in practice. Both sides are agreed, I hope, that we want the new scheme to be set up by 1978, which means that new pensions will become payable from 1979 onwards; that we want existing good occupational schemes contracted out to the maximum possible extent and that we shall regard it as one measure of the success of the new scheme if it has a very high level of contracting out; that we want the poorer schemes which may at present fall short of what is needed for contracting out under the new Act to be improved and then contracted out; and that we want pension schemes to be extended to those groups previously excluded, particularly manual workers and women.
But if these are the Government's purposes in the unfolding of these Regulations, as the Department emphasises, we hope that from now on this aim will not be cut across by the uncertainties of the pay policy and the activities of other Departments of State which have

created very great difficulties in the past few months in the pension world. The operation of the early stages of the Government's pay policy have threatened to cause very considerable damage to the occupational pensions industry. So far the Government's pay policy has threatened to put a spoke in the wheels of the new two-tier occupational pension scheme.
I hope therefore that the Secretary of State will reassure us this evening that the pay policy will not at the next stage contradict the purpose of all these Regulations. If, as indicated in her contribution, she emphasises particularly the benefits which she sees her new Act bringing to women, arising out of the equal access Regulations, I hope that she will make it clear that she has realised that to open up the provision of private occupational funded pensions to women will require very considerable improvements in existing schemes and will mean the creation of new schemes where none exist, and that this purpose, and hence her aim of extending pension rights to more and more women, is likely to be frustrated if the Government's pay policy continues to be as hamfisted towards pensions as in the recent past.
There is no need to go back—and it would be outside the scope of the present debate—over the shambles of the £6 policy set out in the Remuneration, Charges and Grants Act 1975. When that Act came forward it was clear that the sponsoring Department, the Department of Employment, had no idea about the pensions world, had no idea of the Government's own pension policy, which was still going through Parliament at that stage, and had paid no heed to pension provisions when preparing the original draft of that Bill. Fortunately there were some late amendments which had the effect of minimising the conflicts betwen the Government's first pay policy and the policy set out in the 1975 Social Security Pensions Act by the Secretary of State for Social Services.
These Regulations, the detailed working out of the Pensions Act of last year, emerge when we are about to discuss phase 2 of the Government's pay policy—phase 5 of the pay policy if we take an overall global view over the past three or four years of the pay policy of this country. The present situation, even with


the amendments won last year, is very unsatisfactory. If it remains, it will cut across all the purposes implicit in these regulations.
Under phase 1 of this Government's pay policy all improvements to occupational pensions are within the £6 limit and the £8,500 cut-off. If there are actuarial deficits in schemes which have to be met to keep up present benefit levels or increases in funding necessary to raise pension benefits following allowed pay increases, "topping-up" will be permitted. There are some strange arrangements. Even when actuarial surpluses are made, pension benefits cannot be increased and employees' contributions to the fund cannot be reduced outside the pay policy limits. It is completely obscure whether in that situation employers' contributions can be reduced.
The Government say that after 31st July it will be open to those with pension schemes to improve them by the minimum necessary to achieve the contracting-out standard required by the Pensions Act by April 1978. Fortunately, that includes improvements for the purposes of the equal access Regulations. They will not be thwarted by the pay policy.
I hope that what I have said about pay policy will underline what a mess the present situation is to employers, their pension advisers and trade unionists following pension policy. These regulations will be thwarted unless the next stage of the pay policy takes into account the impact on pensions and includes a much more sensible policy on pension matters.
Considerable exemptions from the counter-inflation policy are required for pension provision if we are to continue the policy of the Pensions Act 1975. In particular, the Government must return to the position adopted by all previous Conservative Governments of exempting pension provisions from pay and prices policy, otherwise, particular difficulties will arise under phase 2 of the Government's policy.
Employees, particularly women, who are not members of schemes because their employers do not operate them will have no idea when the law will permit an employer to contemplate setting up a scheme contracted out of the Act.

Manual workers will find that they cannot have the benefits under their schemes put up to the level of the schemes for white collar workers in their industry if the necessary improvements exceed the Government's pay policy guidelines.
The poorer schemes will be able to be brought up only to the minimum necessary standard for contracting out. The purpose of the Act has never been just to bring the poorer schemes up to this minimum level. That level was meant to be a bare minimum. We were meant to be encouraging employers to set up schemes to provide benefits well beyond what the State could provide.
If pay policy continues to blight the development and improvement of occupational pensions, the economy as a whole will lose the benefit from higher savings and investment, of which pension funds remain an important source. Pay policy could also stop the process of bringing pensions into collective bargaining in industry. The welcome process of the last few years of making trade unions and employers more pensions minded will be brought to a halt. We cannot have a stop-go policy in this kind of bargaining caused by interference from ill-thought-out pay policies.
Although in the Regulations before the House the Government, through one Department, are trying to sort out the detailed problems of getting right the methods of calculating premia and equal access for women, and getting a date set for the implementation of their policy, all those matters are vitally threatened by the next phase of pay policy if it continues to inhibit pension provision. The considerable damage, going right to the root of what I hope is the common purpose of the House on pensions, that could be done is illustrated in a memorandum from the Life Offices' Association sent to the Paymaster-General on 18th February 1976, which deals with the restrictions that pay policy imposes on pensions provision. That memorandum reads as follows:
The announced restrictions make it impossible for new or improved schemes to be introduced above the minimum level and therefore all the advantages of a good private scheme will be lost. In the circumstances, it would be difficult—or even impossible—for pensions advisers to recommend that these minimum schemes should be contracted-out, so long as the restrictions remain. This means


that if the announced restrictions from August 1976 go ahead unchanged, there will not be sufficient time to recover from them in time for April 1978. Indeed, if no amendments are made, we suggest that 1978 as a starting date for the new scheme is completely impossible so far as contracting-out is concerned. The result will be that the Government's pledges, promises and exhortations about a partnership will be seen as empty words.
Those pledges, promises and exhortations about partnerships with the pensions industry came from the right hon. Lady and her colleagues in the Department. They have been accepted in good faith by the Opposition and, during the passage of the 1975 legislation and thereafter, we tried to produce a political truce to give some certainty outside that would lead to the development of much better occupational pensions for many people in industry. Those promises, pledges and exhortations by the right hon. Lady are in danger of being frustrated by the incompetence of her right hon. Friend the Secretary of State for Employment.
When the discussions on the next round of pay policy get under way I hope that the right hon. Lady will be much more involved and much more consulted by her colleague. I know that the right hon. Lady is not the responsible Minister for the intended legislation on pay policy, but I hope that she is vitally involved in the consultations and discussions on the pensions side. I hope that she will give us an assurance that she is involved in discussions with the Department of Employment, that these Regulations which continue the 1975 Act policy demonstrate the policy of the Government as a whole and that that policy remains the encouragement of the maximum level of contracting-out and improvement in the pension provision.
Our proceedings in the next few days will to some extent be concerned with the consultations between the Government, the TUC, the CBI and other bodies on the broad outline of pay policy. In those consultations the pensions industry and pensions interests have to be involved because their contributions on aspects of pay policy and the counter-inflationary policy are as vital as any others. I hope that the right hon. Lady will make sure that these consultations will not be bungled a second time round and that the Government will move substantially from their present position which is so inhibiting

the future development of pension provision.
I know that equal access for women will take up part of the right hon. Lady's speech because it is a part of the 1975 Act which is particularly dear to her. We have debated this subject before, and I do not want to debate it at length now because we welcome what lies behind the Regulations. The right hon. Lady has made women more equal than men in important respects in the pensions field. That stands out particularly in the national insurance scheme when women who work until 65 for the same income as men who work until 65, receive a pension one-third greater than those men, although the women have not made any contributions for the last five years before retirement.
I am sure that the right hon. Lady is aware that something more than equality is embodied in some parts of her legislation. That is mainly because she is encumbered, as all previous Governments, with the different retirement age which the country imposed upon itself in the 1940s. We have not been able to get rid of the artificial concept that women are expected to retire at 60 whereas men have to wait until they are 65 before they can draw exactly the same pension.
I know that it is difficult to change retiring ages. We have discussed this matter before, and it is appreciated that it is difficult to suggest that women should retire any later than the current retirement age. It would be fiendishly expensive to propose reducing the retirement age for men. However, the present situation is a nonsense. Now that we have equal access and now that we have the new scheme, the nonsense is further underlined. It will persist in our system until some move is made away from the present anomalous discrepancy.
Other countries are introducing the concept of flexible retirement for men. They allow those who have made adequate pension provision to retire early with a somewhat lower pension that is calculated on an actuarial basis. Men can retire before the fixed retirement age which applies in this country. We are not yet ready to introduce flexible retirement. However, I hope that the Government will accept that it is high time that we began to undertake some urgent work on the problems involved in the concept


of flexible retirement. At some stage a Government will have to move towards that improvement in pensions. That can be done only when resources permit it.
Finally, I refer briefly to the one Regulation to which I have not yet referred, which deals with preservation. It was the 1973 Act that first introduced the concept of preserving occupational rights when employees left pensionable employment. The Regulations illustrate how fiendishly complex the whole problem of preserving pension rights has proved to be and what a considerable achievement it was to get the concept on to the statute book in 1973.
Although we are still absorbing the complexities of preservation, and although the Occupational Pensions Board is still catching up with huge arrears of work in approving schemes of preservation, those interested in pension matters should be looking ahead to the problem of better transferability of pension rights between different occupational schemes. It threatens to be an extremely complex matter, but it is exceedingly important if we are to develop occupational pension provision. At some stage we should be able to produce a scheme that guarantees proper transferability between schemes so that those who change employment can carry with them the benefit of the pension entitlement to which they have been contributing in various employments.
I hope that the right hon. Lady will confirm that although the Government may not be ready to legislate to improve transferability, work has not in any way abated on transferability in her Department and that the Government realise that it is a problem that must be kept in the forefront of pension policy over the next few years.

10.24 p.m.

Mr. A. G. F. Hall-Davis: I begin by adding my feeling of great regret following the death of Mr. Brian O'Malley. He showed immense patience, courtesy and a real willingness to listen to all Back Benchers who served on pension Bills. We all appreciated those qualities and the news this week has been a sad shock. I am sure that the whole House will wish to convey its sympathy to his widow and daughter at this sad time.
I shall be brief as my hon. Friend the Member for Rushcliffe (Mr. Clarke) has touched on every matter that I felt required comment. I wish to emphasise that if the whole purpose of our long and detailed deliberations, with the joint aim of securing the maximum contracting out, is not to be frustrated, there will have to be a different attitude with regard to phase 2 of the pay policy as compared with the first phase.
It must have been as big a shock for the right hon. Lady and her Ministerial colleagues as it was to the Opposition to discover last summer that, apparently, the Chancellor of the Exchequer and the Department of Employment had little knowledge of these matters and had given little thought to their impact. This relates to the most critical phase of pension scheme development seen in this country probably for two decades.
To say that the improvement should come out of the £6 figure was difficult enough in the first year, but it is always easier in the first year to deal with a policy of this kind. Hope deferred for a year is tolerable. But when I listened to the Chancellor this afternoon, I felt that it would be ludicrous to suggest that there was any room for improvement within the limit if he were able to secure agreement to a 3 per cent. pay increase round. Therefore, this point requires fundamental thought.
I wish to make one observation which may be of some assistance to the right hon. Lady. As I understand the position, in April 1978 employers contributing to national insurance in respect of employees who are not contracted out will have to increase contributions by 11/2 per cent. of earnings. It would be ironical if employers who had not made provision for their employees within a scheme were able to expend an additional 13/4 per cent. of pay roll, whereas those who had schemes in operation were not able to make a similar improvement in benefit expectation for members of contracted-out schemes. To compel those those employees are not contracted out to up employer costs by 1½ per cent. but at the same time to forbid those with contracted-out schemes to make improvements without these coming out of pay limits would be ironical.
In recent weeks I have given thought to the practical operation of integrated contracted-out schemes under the new arrangements. I concluded—it may be a mistaken view—that it will be much more difficult for schemes, other than those of the highest quality, to integrate with the right hon. Lady's scheme than perhaps some of us had anticipated even in the lengthy Committee debates.
The right hon. Lady's scheme is ingenious in its rapid accelerated build-up over 20 years, but one does not finish even then. Having provided minimum pension requirement over that period, the fact that one can select the best 20 years of the working life means that one has to look at minimum pension requirement throughout the whole working life of members of a scheme. It will not be possible for designers of pension schemes to make improvements barely sufficient to meet minimum pension requirements. Nobody will want to run schemes balanced on a knife edge from year to year as regards meeting minimum pension requirements. There must be a safety margin. One has to be confident that a scheme will meet the minimum pension requirement throughout the whole employment span of the individual.
To do this will require quite sizeable improvements in the schemes which are not of the highest quality at present. Those improvements may well be made if the economic climate is favourable and if the employer is free to do so under the restrictions, or exhortations, shall we say, of other Government Departments—the Chancellor of the Exchequer and the Department of Employment.
However, if by any chance, because of the tightness of the pay increase for which the Chancellor is now aiming, the Government should adhere to what they have presented as a rather generous concession—I know that the right hon. Lady the Secretary of State must have swallowed her pride to do so, and that she probably has not so presented it—and continue to permit schemes just to meet the minimum guaranteed pension, what I am sure will happen is that when firms look at the administrative and organisational problems involved, they will decide that it is not on to contract out.
I accept that the right hon. Lady and the Chancellor of the Exchequer want to see schemes contracted out. There must be a bit of leeway and latitude. One will have to go quite some distance beyond meeting the minimum guaranteed pension requirements if one is to be sure throughout the full span of employment that one is not one minute behind or one minute just in front.
The right hon. Lady has time between now and July to see that these matters are really understood by those concerned. There must be some room for manoeuvre. Good schemes must not be unduly penalised when employers who have not been so forward are able to give substantial concessions, because if that is not narrowing the differentials, I do not know what is.

10.32 p.m.

The Secretary of State for Social Services (Mrs. Barbara Castle): I should like, first, to express my personal appreciation and that of all my right hon. and hon. Friends for the generous remarks that have been made about someone whom I find it impossible not to continue to describe as my right hon. Friend the Member for Rotherham.
I am very grateful for what the hon. Member for Rushcliffe (Mr. Clarke) and the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) have said, and for what the right hon. Member for Wanstead and Woodford (Mr. Jenkin) expressed to me privately earlier in the day.
I believe that I may have an opportunity tomorrow, before a rather larger House, to pay a tribute to my friend, Brian O'Malley, but it would be quite wrong for us to let an occasion such as this pass by, when we are discussing the field in which he was such a master, without referring to the great contribution that he made, as has been rightly said, to the construction of this new pension scheme. It is a comfort to us to know that he has left behind this remarkable memorial to his work.
We remember Brian O'Malley as not only a warm and loyal colleague and friend but as a great parliamentarian. I do not think that any of us will ever forget the very spirited debates that he used to have with the hon. Member for Rushcliffe. We shall miss their swordplay. All


of us remember Brian O'Malley's generosity, good nature, sense of humour and total lack of malice. I shall certainly see that the sentiments that have been expressed tonight are conveyed to his wife and daughter.
I shall answer this short but important debate by pointing out that it would be an odd tribute to Brian O'Malley if we as a Department or a Government were to allow anything to be done to endanger the great pension scheme to the successful introduction of which he devoted so much of his efforts and his brilliant intelligence. We must therefore take this as a relevant starting point. I am as determined as any of the hon. Members who have spoken that our plan for the scheme to be introduced and fully operational in April 1978 shall not be thwarted.
The hon. Member for Rushcliffe said very fairly that he did not believe that we would wish to endanger the scheme or the amount of contracting out which we have done a great deal to make possible. So we are not facing the situation, I gather, in which the Government are being accused of wanting to slaughter their own child. It is rather more complex than that.
Since the scheme was first put on the statute book last summer, Brian O'Malley and I have continued to press ahead with the completion of the arrangements for bringing it into effect on the target date. There has never been the breath of a suspicion that, in spite of the economic difficulties facing the country, the Government had any intention of seeking to postpone the scheme. On the contrary, we have exploited to the fullest extent possible the completion of the regulation-making that had to be carried through.
The debate has centred around three of the four Regulations which we have before us tonight and which are an important step toward that end. The Commencement No. 5 Order means that appointed dates have been set for all the contracting-out provisions in the Act. The Contracted-out Employment Regulations embody the final solution to the problem of the open-ended commitment in respect of early leavers. The hon. Member for Rushcliffe admitted that the Government had made another important concession here which we hope and believe will end the argument about the

open-ended commitment and will finally remove what was held to be one of the outstanding stumbling blocks to whole-hearted co-operation in the scheme.
We took power in the closing stages of the Bill to provide an alternative to our original proposal for dealing with this problem. It was a power which Brian O'Malley gave no undertaking would be actually exercised, but one of his last tasks was to enter into detailed negotiations with the industry to see whether an alternative could be worked out that was fair to the State scheme, which was within our criteria and which would be acceptable to the pensions industry.
The formula of the 8½ per cent. fixed rate in place of the 5 per cent. limited revaluation premium which is embodied in this Regulation has met all those requirements and has been widely welcomed in the pensions industry. That is another proof that we meant what we said and also that the Government meant what they said when they declared that we were engaged in a serious partnership, removing every possible difficulty with a view to pressing ahead for full implementation on the date we had always set ourselves.
I shall turn to the equal access Regulation in a moment, because the hon. Gentleman developed a rather separate side of that, but the only outstanding Regulations now on contracting out are those concerning the actuarial tables, which set out the method to be used in calculating State scheme premiums. I hope to be able to circulate these Regulations for comment before Easter, although I think the House appreciates that they are rather complicated and will require consultation and cannot be rushed. We have, therefore, cleared the way as quickly as possible for the implementation of the scheme on the target date set.
It is against this background that I want to deal with the major point pressed on me by the hon. Gentleman, but perhaps before I turn to that I should refer briefly to the two other points that have been made. I come first to the equal access Regulations.
The hon. Gentleman seemed to imagine that I would use this occasion for another triumphal chorus about what I had done for women. He is aware, of


course, as I am, that if Brian O'Malley had any faults whatsoever, there was just a slight, faint tinge from time to time of male chauvinism, which my presence was necessary to correct. But, of course, I am glad and proud that we have established through these Regulations that membership of an occupational pension scheme must be open to both men and women on terms which are the same in regard to age, length of service, and whether membership is voluntary or obligatory.
I am not in a mood to make debating points tonight, but I could not refrain from a small smile when the hon. Member for Rushcliffe told us innocently that there has been a continuation of the progress towards equality for women made under our predecessors' late and unlamented scheme. I remember as a member of the Standing Committee which discussed the 1973 legislation moving an amendment to secure equal access for women in occupational pension schemes. I moved it in vain, because it was turned down by the Conservative majority. But I shall not labour that point.
The hon. Gentleman is right, of course, in thinking that this succession of steps towards equality of treatment for women in this country has tipped the scales in their favour a little at the present time in regard to social security. I accept that. But I am sure that the hon. Gentleman was not suggesting that it was his party's policy to increase the retirement age for woman who have contributed all their lives in the belief that they would retire at the age of 60.
I do not believe that it is the Conservative Party's policy to maintain that the country can at present afford the cost of reducing the pension age for men from 65 to 60 in order to achieve equality, because it would cost about an extra £1,600 million a year if the pattern of retirement remained the same between 60 and 65 as it is now between 65 and 70. That figure takes the offset savings in short-term benefits fully into account. We must face that situation.
I agree that we should continue to study all possible variants of a flexible scheme, but none of them is cheap. They involve more money or later retirement for women. We shall have to continue to consider the matter, but in the meantime I have no doubt that it was right

to graft on to the present discrepancies in retirement age the new panoply of equal rights for women.
The hon. Gentleman rightly said that the Preservation of Benefits Regulations were a useful step forward although they did not have the transferability which it was once dreamed they could have. I have made clear that I shall refer the issue of transferability to the Occupational Pensions Board for advice. The Board has an invaluable role in producing reports on the various aspects of pensions which we have referred to it. I am sure that the House is grateful for those reports, and more are to come. The Board has a substantial work programme and I cannot yet confirm when I shall refer the problem of transferability to the Board. I must allow it to complete its existing work before giving it any more.
I now return to the central theme of the debate—the plea that the progress of the scheme will not be cut across by the next stage of pay policy. We are all naturally concerned about the impact of future pay policy on the development of occupational pension schemes. It would be wrong lightly to dismiss the importance of the concession made by the Secretary of State for Employment last July when he announced that any new or improved scheme introduced from 31st July this year would not count against a future pay policy if the improvement were not greater than that needed to reach the minimum standard for contracting out. That was a significant concession in the context of the background against which the pay policy Mark I was launched.
The priority aim was to stop inflation in its track and the policy therefore had to be simple or even crude. We never denied that it was anything but rough justice and that it had to be patently fair—over-simplified, perhaps. There had to be something so clear-cut that everybody could understand it and there had to be no suspicions of loopholes through which anyone could escape the sacrifices that were being asked of everybody else.
All other forms of fringe benefits were required to be set against the pay limits. It was only right that private pensions provision should be subject to the same constraints. The policy was evolved


quickly. It was another proof of the Government's concern to safeguard and nurture their own pensions scheme that this concession was made in that very hurried near-crisis atmosphere.
I appreciate that what we are now concerned about is stage two, and that there is more time for everyone concerned to examine its aspects and consider possible refinements and all the modifications that are being pressed upon us from various sides. Last week I met representatives of the leading pensions organisations to consider this very point. They left with me a comprehensive memorandum, which I am sure the hon. Gentleman has studied. They asked, as the hon. Gentleman asked tonight, for complete exemption for pensions schemes from the stage two control. I was glad to have the opportunity of discussing that with them.
I suggested that the biggest help any Government could give the pensions industry, and the best guarantee they could give of the success of the new pensions scheme, would be to conquer inflation. They did not demur. It is clear to me that the last thing anyone connected with pensions would welcome is a return to a free-for-all in incomes. I cannot imagine anything more likely to arouse the old bogies about whether the possible commitments under this legislation are sustainable. The Government's first task must be create confidence that they are sustainable, which means that we must create the confidence that inflation will be conquered, and therefore this must have overriding priority.
What interested me in that discussion was that the representatives' main argument in support of complete exemption was the social one that the hon. Gentleman deployed, the suggestion that neglected groups such as manual workers and women would suffer unless there were a total exclusion of pensions from pay policy. This considerably under-emphasises the leeway that there is still to be made up by those two groups. Even under the present provision for improvements up to the minimum level for contracting out, alteration of the rules for the purpose of meeting the equal access requirements may be regarded as coming within this easement. That is a very important gesture.
I put this point to the pensions industry's representatives and they said that there was a danger of the present restrictions locking some workers out of the new schemes or locking workers into poorer schemes than they would otherwise have. I said that their views would be conveyed to my colleagues and taken into the coming discussions generally.
The important point for the House to realise is that the Government's attitude is not to impose a pay policy. I think that the Chancellor made that clear time and again this afternoon. The Government's policy is to accept a pay policy which would win consent. When the hon. Gentleman says that the Conservatives made a complete exemption for pensions schemes under their pay policy, the most important thing to remember is that the Conservative schemes did not succeed. It came unstuck; it led to an explosion and resentment.
I am asking the hon. Gentleman to face this central point, that if there is a considerable social argument here, the working men and women who will be forging a new pay policy by consent will be taking it into account. It would be for them to decide whether over-refining the pay policy in this way might not lead to difficulties. It is not for the Government to impose these solutions.
I believe that the workers themselves are increasingly aware of the value to them of pension developments. This legislation has helped to make them more conscious of it. This is one of the factors they and their representatives will be weighing up.
However, we must bear in mind that the more complicated the policy becomes, the more difficult it is to understand or accept. These are fine matters of balance of judgment. I asked the representatives of the pensions organisations to think about this problem and to let me have their ideas on the options which were available to us in the direction of modifying pay policy with regard to pensions schemes. I am glad to tell the House that they agreed to go away and think about what I said and to let me have their ideas. The really important priority for the workers themselves, and for the pensions industry, must surely be to make a success of the policy by common consent.
I listened last night to "Panorama" in which Mr. Hugh Scanlon was discussing the next stage of the incomes policy with Lord Watkinson, the deputy president of the CBI. What came across to me urgently were some things Lord Watkinson said. He said:
I think generally incomes policy has succeeded, and somebody ought to say it, and it has not been broken in any major aspect. And all credit to the trade unions who have done this.
The second thing he said was:
Year one is always much easier than year two. But if we do not get year two, we are going to go bust.
That was the message that came over compellingly as those two men, with their responsibilities and anxieties, tried to work out between them whether a pay policy, stage two, could be achieved and be the success that stage one had been.
Lord Watkinson, finally, looking at Mr. Scanlon, said:
All right, we will have our differences, we will have our debates and rows and we will not agree on certain things, but if we cannot agree on the main issue—and I have got to say this again—then there is no future for our country, and the man who tries to elevate the details in front of that main objective is taking a very serious responsibility at this moment.
That is the message that I leave with the House. We must leave it to those who have the task of forging the next stage of the pay policy to take into consideration all the comments which have been made tonight and to reach a judgment on how best we can make the policy succeed.

11.2 p.m.

Mr. Kenneth Clarke: I thank the right hon. Lady for intervening in the debate. As she said, we are none of us in the mood for making debating points tonight. Therefore, I shall not respond too vigorously to what she said about the 1973 Act, except to say that for the first time it promised all women in work access to a funded pension scheme. That represented a considerable breakthrough from what had gone before.
I remind the right hon. Lady that one of the principal purposes of the 1973 Act was to extend funded pension provisions to manual workers and to women who were previously excluded. To that extent, I still claim that it represented a considerable advance. That is one reason

why we do not oppose the Equal Pay Act Regulations which take the matter somewhat further in the new proposals.
I find startling the suggestion that the failure of the Conservative Government's pay policy was conditioned by its exemption of a pensions policy. That was always a desirable feature of our pay policy. It helped to encourage those engaged in collective bargaining to turn their attention much more to pensions provision and deferred pay than they had before. It was a positively constructive feature of all the phases of our incomes policy. I seem to recall that it was a major dispute in the mining industry which led to the end of that policy rather than anything which arose from the exemption of a pensions policy.
I do not propose to labour any of these debating points. I was reassured to hear the Secretary of State underline the Government's purpose of making sure that this new pensions policy not only gets on the statute book, but is put into effect properly in 1978 with a proper level of contracting out. I was reassured to hear the right hon. Lady describe the contacts she is having with the pensions industry and the way in which, having had discussions about the problems, she was forwarding the industry's representations through the Government to those sections where the next stage of legislation on pay policy are being worked out.
I fear that, as the right hon. Lady said, it was the lack of time when the £6 pay limit came along that caused the pensions industry not to be consulted. I also suspect that her Department was not closely involved, and therefore the first phase of the pay policy resulted in an apparent cutting across of all the policy objectives that the 1975 Act was meant to achieve.
I accept that no one in the pensions industry, and certainly not on this side of the House, is losing sight of the prime objective of getting inflation under control. It is no part of this debate to discuss anti-inflation policy and the Government's success or otherwise in achieving that goal generally. I am sure that no one on behalf of any special interest group will urge anything which will endanger that goal.
It remains our conviction that the inclusion of a pensions policy in the limits originally put forward in the crude


£6 pay limit Bill last year would have been immensely damaging in the long term to investment and savings because of the damage it would have done to the occupational pensions industry. We do not believe that the concessions go far enough. We hope that phase two will result in consultation taking place, the pensions industry being listened to by the Government and its warnings heeded.
I hope that when phase 2 is finally produced, it will have some good effect and that we shall not have to initiate this kind of debate again to point out that one arm of the policy runs the risk of defeating the long-term aim for pensions provisions on which we are all agreed.

Question put and agreed to.

Resolved,
That this House takes note of the Occupational Pension Schemes (Preservation of Benefit) Amendment Regulations 1976 (S.I., 1976, No. 140), the Occupational Pension Schemes (Equal Access to Membership) Regulations 1976 (S.I., 1976, No. 142), the Contracted-out Employment (Notifications, Premium Payment and Miscellaneous Provisions) Regulations 1976 (S.I., 1976, No. 143) and the Social Security Pensions Act 1975 (Commencement No. 5) Order 1976 (S.I., 1976, No. 141).

ADJOURNMENT

Motion made, and Question proposed. That this House do now adjourn.—[Mr. Bates.]

WEST MIDLANDS (INDUSTRY)

11.5 p.m.

Mr. Bruce George: I am pleased to have been successful in securing an Adjournment debate so soon after my last, on Walsall's housing need. It is my intention to raise on the Floor of the House at such intervals as the ballots for Adjournment debates will permit the considerable and fundamental problems affecting Walsall.
The industrial decline of the town is inextricably entangled with the decline of the West Midlands. In 1907, Lloyd George told the Walsall Chamber of Commerce that, on the whole, it had a greater variety of trades than almost any other town in England. The character of the industry has not changed all that much since. It is characterised by

a preponderance of metal-manufacturing and metal-using firms and a small proportion of service industries.
Historically, the town has developed with a large number of small firms and a small number of large firms, like Rubery Owen, F. H. Lloyd, Tube Investment.
To an extent, the numerous indices of decline in the region and the town of Walsall are a reflection of the national situation and the ultimate solution will have to be nationally determined.
But the crisis in the West Midlands is more deep-rooted and derives from basic structural defects, and these will not be remedied by tinkering or short-term palliatives. The signs of decay could be discovered more than a decade ago, but it is only in the last few years that the cries of anguish have been so loud and there has been a stream of authoritative reports and studies emanating from bodies in the region showing the industrial decline in absolute terms and the decline in relation to other regions. These studies include the West Midlands County Council's "A Time for Action" the joint monitoring steering group's "A Development Strategy for the West Midlands" and the West Midlands Planning Authorities' Conference's "Current Developments in the Economy of the West Midlands Region."
Representations have been made by hon. Members, a number of trade unions, chambers of commerce, the West Midlands CBI and the West Midlands Economic Planning Council. This growing crescendo did not go unnoticed by the Government and I welcome very much the meetings between the Government and various spokesmen, elected and non-elected, from the region, culminating in the meeting on 22nd March with the Secretary of State for Industry. I applaud the spirit of co-operation which has been manifestly exhibited. It bodes well for our future recovery.
That the halcyon days of the 1950s and 1960s are over is incontrovertible. The area that was for so long the powerhouse of the economy is slipping down the industrial league table. Our primary objective must be to halt and reverse this decline. The West Midlands can and must regain primacy, not just for the advanage of our own inhabitants, but for the economy as a whole.
For the moment, all is not well. The deterioration in employment vis-à-vis other regions has worsened significantly both in absolute magnitude and relative to the national experience. The region's economy is distinctive in its heavy dependence on metal-using industries and, of course, vehicle manufacturing. Most of our dominant industries are based on nineteenth century foundations and there has been regrettably little development of newer products such as electronics, plastics and chemicals. Some have argued that the policies of successive Governments are responsible for this lack of diversity and over-concentration. My own town is characterised by over-dependence on certain basic industries.
Output has plummeted. The poor record of the economy in the growth areas would not be so significant if there were adequate development in other sectors. We are largely dependent upon vehicle manufacturing, engineering and the metal industries, and the immediate prospects for these industries are not good.
The area is receiving a declining share of almost all types of investment. The region is characterised by low ouput, low investment and high unemployment. It is regrettable that, in addition to high unemployment, one-quarter of the country's work force on short time is in the West Midlands.
In Walsall a number of the larger firms have been shedding labour—Rubery Owen Holdings, Tube Investments, BRD and Crabtrees. Only last week the "Servis" washing machine factory announced a large number of redundancies. It is not just the big boys who are shedding labour. Many smaller firms are also doing so. Many of our "traditional" leather companies and companies making locks in Willenhall have gone out of existence, with a consequent loss of employment. We hope that the shedding of labour has somehow levelled out, but there has been no increase between 1961 and the present day in the number employed in the manufacturing sector in Walsall. That is indicative of the position in the region as a whole.
What is being done? A great deal is being done by the Labour Government to combat the industrial stagnation of the country, particularly in manufacturing. I welcome the new approach to industrial

strategy. I welcome the National Enterprise Board and the Industry Act. I reiterate the view of the "TUC Economic Review, 1976" which is as follows:
The main thrust of the industrial strategy is to give greater priority to, and to improve the performance of, the sectors of the economy—principally in manufacturing—which should have the biggest contribution to make to the solution of Britain's industrial competitiveness.
I also welcome the rescue operation of British Leyland, Alfred Herbert and Chrysler, without which the economy of the region, at the moment serious, would indeed have been desperate. Many people in the West Midlands are directly or indirectly employed in these firms which have been saved. I am pleased by the encouragement being given by the Government to the modernisation of the machine tool industry and foundries—there are many foundries in Walsall. I should like to ask the Minister how many companies in Walsall have applied for assistance. Perhaps the answer to that question can be given in writing.
Our attack on inflation is slowly succeeding, and that will be of immense help to the industrial recovery of the West Midlands, but much remains to be done. Success will not be achieved merely by the Government alone. The remedy for our inadequate industrial performance lies, too, in the hands of both sides of industry—employers and employees.
For some reason industries in the West Midlands seem to be unable or unwilling to invest to raise productivity. I sympathise with manufacturers about some of the difficulties they face, but if we are to recover we must invest, and we cannot wait too long for that investment to be forthcoming. When the upturn in the economy comes, the danger is that investment will come too late and manufacturers will be unable to capitalise on the boom that will undoubtedly occur.
My advice to manufacturers is: invest, have faith in our future, be optimistic. We must get funds to invest because our future depends on investment. I hope that adequate funds will be forthcoming from conventional private financial sources, but if sufficient funds do not come forward, alternative sources may have to be tapped.
Productivity must be raised. We are indebted to the work of Professor Dudley of Birmingham University who has shown


many ways in which existing machinery can be improved to achieve a 100 per cent. increase in efficiency. It is vital not just to improve existing machinery and the efficiency of labour but to replace the antiquated machinery and plant which are often to be found in the West Midlands by plant more in keeping with the twentieth century.
I have been around the plants and foundries in my own and other constituencies, and often it is like going back into the middle of the nineteenth century. Our industrial recovery will hardly be strengthened by the continuation of the use of obsolescent machinery. I believe that when the economy picks up, we shall have, inevitably, great pressure on skilled labour. Any impetus we might have will be destroyed if the demand is not able to be met. There must be a more positive programme of retraining by both Government and industry. We must enable the labour force to adapt to the needs of new industry.
I turn now to the question of industrial development certificate policy. The arguments are well known. I welcome the statement in a parliamentary answer yesterday by my right hon. Friend the Secretary of State for Industry in reply to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). My right hon. Friend said, referring to his valuable meeting on 22nd March:
I took the opportunity to make it clear that industry in the West Midlands should not be deterred from applying for industrial development certificates for specific projects in the region, and I shall do everything practicable to assist the West Midlands to overcome its current problems."—[Official Report, 5th April 1976; Vol. 909, c. 7.]
There has been a great deal of criticism of IDC policy. I do not object to the policy in principle, but there are arguments that it should be applied selectively and, indeed, sub-regionally.
The regional policy is a blunt instrument and could be refined to distinguish areas with the economic planning regions. Difficulties have been concealed by the regional average unemployment rates. There is a desperate need to develop industry. Industry in my area is too over-concentrated. There is a great need to introduce new manufacturing industry to the towns and the region as a whole.
An important part can be played by local authorities, both the metropolitan district councils and the West Midlands County Council. They can play a particularly important part in the provision of land suitable for industry, for advance factories and industrial estates. The local authorities can help significantly in dealing also with the problems of industrial dereliction and poor environment. In many parts of the Black country—my constituency in particular—there is heavy dependence on the metal industry. This has often produced a most uncongenial and unsatisfactory environment in which to work and live. Many of the more technologically advanced companies have left the area, leaving as a legacy nineteenth-century obsolescent plant and sites. These sites and such plant are not conductive to modern industrial development.
People have been left behind as a result of more advanced industries moving out, and often the skilled or semi-skilled people are the least able to cope with the vagaries or our economic climate. It is vital that the environment should be significantly improved. We must not neglect improvement of housing, social services and health services in developing infrastructure. That will have an impact on industrial performance. Manufacturers will feel much more able to extend and embark on growth if they and their work forces can see a more favourable environment.
Walsall Council believes that the prosperity of the region must depend to a large extent on self-help, which can do a great deal to facilitate industrial growth. We are endeavouring to develop co-ownership factory schemes. This experiment in setting up small firms in socially deprived areas is commendable, and I look forward to the response of the National Enterprise Board to the schemes.
There are those who believe that industry should be left to its own devices to solve the problem by internal means. Conversely, there are those who believe that the solution will be exclusively in the hands of the State. I believe that neither extreme is feasible. We need an efficient, publicly-owned sector and an efficient, dynamic, responsible private sector—both working together for the common good and in liaison with the Government.
We have as a region and a nation enormous assets, not the least being the resilience, skills and industry of our working force. The future is not as bleak as many people portray it. With good fortune, planning, hard work and cooperation we can bring an end to our problems and enjoy prosperity in the West Midlands as well as in the country as a whole.

11.22 p.m.

The Minister of State, Department of Industry (Mr. Gregor Mackenzie): We are all grateful to my hon. Friend the Member for Walsall, South (Mr. George) for raising this important topic—not only because the West Midlands is a large and important region in its own right, but because it contains a vital part of Britain's industrial heartland.
Matters affecting the West Midlands, its industries and its employment affect the whole country. My hon. Friend will know that we all share the genuine concern which he has expressed tonight. I have been in contact with local authorities in the region and have met representative bodies there. We are all genuinely concerned about the points which he has made tonight with such great force.
One mark of the concern we feel in West Midlands affairs is the number of meetings that I and other Ministers have had with representatives of the region. In addition, I have paid several visits over the past few months to different parts of the West Midlands. On 15th and 16th October last year I spent two days in the region meeting representatives of the West Midlands County Council, Coventry Metropolitan District Council, the West Midlands Planning Authorities Conference, West Midlands Economic Planning Council, Birmingham Chamber of Industry and Commerce and others. This was followed by a further meeting here in London on 22nd March, when my right hon. Friend the Secretary of State for Industry and I met representatives from these bodies.
The Secretary of State and I found that meeting most helpful and I am sure that the representatives of the various bodies also appreciated the usefulness of the exchange of views which then took place. My right hon. Friend said on that occasion that he thought the region was perhaps fortunate to have such a number

of articulate, thoughtful and well-briefed spokesmen. The Department of Industry and other Departments have seen and studied with great care the various documents produced by the Planning Authorities Conference and others and referred to by my hon. Friend tonight over the past year or so. We may not always agree with the conclusions of these reports but, nevertheless, we appreciate the care and hard work that have gone into their preparation.

Mr. Reginald Eyre: Only today I received details of the closure of Renold Limited, Power Transmission Engineers, Birmingham. This will result in the redundancy of 350 men and women. This is part of the frightening pattern that is developing in Birmingham and the West Midlands. I congratulate the hon. Member for Walsall, South (Mr. George) on securing this debate tonight, but would it not be a good thing if points raised with the various deputations could be considered in the Standing Committee on Regional Affairs so that hon. Members could put their constituents' problems to Ministers?

Mr. Mackenzie: I understand the concern expressed by the hon. Gentleman about that constituency matter. He will know that my colleagues and I are ready at all times to meet representatives from the regions—and indeed we have done so often—to discuss problems. Discussions in the Standing Committee are the province of my right hon. Friend the Leader of the House. I am sure that he will note the hon. Gentleman's comments. We are all concerned, as I have already said, about the effect of these matters on the West Midlands.
I am sure that there is a genuine concern about the present levels of unemployment and all of us believe that they are far too high in the West Midlands as they are in all other parts of the country. This situation has come as a particular shock in the West Midlands, which has largely been spared the scourge of unemployment in the period since the last war. Unfortunately, there is no solution to the problem for the West Midlands in isolation. The unemployment which exists there is associated with the recession in world trade and the solution can be found only in an upturn in world demand for the type of goods that this


country produces and that it can then sell competitively.
My hon. Friend the Member for Walsall, South was good enough to mention the Government's industrial strategy. It is generally recognised that there is a need for a new approach to industrial strategy for the country as a whole. Our concern about the decline in manufacturing employment, the performance of British industry and the prospects for the years ahead lay behind the new initiative taken at the Chequers meeting of the NEDC last November. The aim of the strategy is to reverse the decline of our manufacturing industry, relative to our competitors, which has been going on now for many years. The emphasis is firmly on manufacturing, because that is the main source of our wealth as a nation and because manufacturing has been at the heart of our indifferent economic performance.
The Government's proposals were endorsed by the CBI and the TUC and studies of the 30 or so industrial sectors chosen for the first round of the operation are now going ahead. Of course, our acceptance of the central importance of manufacturing industry lay behind the White Paper on Public Expenditure and behind the remarks of my right hon. Friend the Chancellor of the Exchequer in opening his Budget in the House this afternoon. The plans set out in the White Paper illustrate the Government's determination to give priority to industrial development over consumption or even our social objectives.
We hope that this strategy is going to provide a framework within which individual elements of Government policy—the National Enterprise Board, planning agreements, selective financial assistance and so on—can be used in a coherent and efficient way. Most important, we hope that the strategy will help both management and unions to tackle industry's own problems more effectively and thus foster a growing realisation that common action to solve problems is vital for the future prosperity of Britain—and of individual regions such as the West Midlands.
I am aware from my discussions with the representatives of West Midlands' interests, as well as from many of the

questions put by my hon. Friend and other hon. Members, that there is a body of opinion that considers that the regional policies followed by successive Governments since the war have deprived the West Midlands of its fair share of the new technological and science-based industries and that, in particular, the operation of the industrial development certificate control has worked to the disadvantage of the region and its industry. We have studied these arguments most carefully, and I do not think that so far the arguments are conclusive.
It has been argued that in the present economic climate the use of industrial development certificates should be suspended in relation to any development taking place in the West Midlands. But this argument does not take into account the considerable period of time which must elapse from the start of a project until its completion. The IDC system is a part of regional policy which is a long-term policy. To abandon it in an attempt to mitigate immediate short-term problems in one region or another would not make sense. I am firmly of the view that the purpose of the present regional policy is to deal with long-term, deep-rooted unemployment problems rather than with cyclical downturns in industrial activity.
This is not to say that there are no steps that can be taken to deal with the present exceptional levels of unemployment in this most important industrial area of the country. I am pleased to see that there has been an increase in IDC applications during each of the last six months, and in fact the total of 49 applications in March was the highest monthly total since mid-1974. I should, however, like to see a further increase in the number of IDC applications in the West Midlands. I can give an assurance that these will continue to be examined with the fullest weight being given to the requirements of the individual company and the prospects for employment in the area where the proposed development is to take place.
I can reiterate what was said by my right hon. Friend in answer to a Question—namely, that no firm in the West Midlands should be deterred from applying for an IDC in the mistaken belief that it is certain to be refused. Only the


smallest proportion of all applications throughout the West Midlands was refused during 1975. I hope, too, that industry in Birmingham and the surrounding conurbation will take advantage of the changes in the IDC control, which I announced to the House an 26th February, to permit the issue of IDCs for the replacement of obsolete factories in urban areas.
I turn to more positive policies. It is important to remember that by no means all Government measures are regional in content, or restricted to the assisted areas. There has already been an encouraging response from industry in the West Midlands to the schemes introduced by the Government which encourage the modernisation of the ferrous foundry industry. My hon. Friend has stressed the importance of that industry to Walsall. The machine tool industry is also of importance. To date there have been 39 applications from West Midlands firms under the ferrous foundry scheme, and six in respect of the machine tool scheme.
A further scheme, the accelerated projects scheme, is designed to encourage industrialists to bring forward investment which has so far been deferred as a result of the current recession. So far 33 projects under this scheme have been submitted by West Midland companies, and it is interesting to note that 25 per cent. of the applications under this scheme have come from companies in the region.
The assistance under these schemes is, of course, additional to the very substantial sums of Government money which have been made available to British Leyland, Chrysler United Kingdom Ltd., and Alfred Herbert. I remind the hon. Member for Birmingham, Hall Green (Mr. Eyre) that had it not been for this assistance, unemployment, especially in the Birmingham area and in Coventry, would have been very much higher than it is at present.
My hon. Friend has mentioned the importance to his area of small companies.

My right hon. Friend the Chancellor of the Exchequer has been careful in the preparation of his Budget to take cognisance of the problems which are faced by small companies. My hon. Friend has properly referred to the encouragement that the Government want to give to them.
My hon. Friend has referred, very properly, to his concern at the number of recent redundancies and closures of firms in his own area. I fully appreciate and share his concern, and I agree that unemployment in Walsall, although it is marginally below the average level for the West Midlands as a whole, is still un-acceptably high. But I repeat that the level of unemployment there, and the redundancies reported, reflect the generally low level of activity throughout the country, and the solution must lie with national policies—namely, with the success of our policy to bring inflation under control and in implementing our industrial strategy.
With the upturn in demand—and I believe that there are some small but encouraging signs of this within the West Midlands now—Walsall and the West Midlands as a whole should benefit. The general trend, I would say, is for the number of redundancies in Walsall and the West Midlands generally to fall. Since January this year there have been only three significant instances in Walsall, involving a total of just over 300 people.
I recognise that there is still a great deal of concern in Walsall, and throughout the West Midlands, and I am grateful to my hon. Friend for raising the matter. I can assure him and other colleagues in the area that the problem will continue to be watched closely. We recognise that the prosperity of this very important industrial area is of major concern to the economy of the country as a whole.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes to Twelve o'clock.